Alphabet shares fell sharply in after-hours trading on Wednesday after the Google parent company reported third-quarter earnings that missed Wall Street expectations, raising investor concerns over rising costs and slowing growth in its core businesses.
The company’s shares dropped between 7% and 10% following the release of its results, according to Reuters and Bloomberg. Alphabet reported adjusted earnings per share of $2.67, falling short of the analyst consensus of $3.02. Net income available to common shareholders declined by 25% to $26.17 billion, as reported by Reuters and Euronext.
Total revenue for the quarter rose 25% to $127.6 billion, but this figure narrowly missed expectations from several analysts, who had projected $128.2 billion, according to LSEG data cited by Reuters and Euronext. Google’s core advertising business, which remains the company’s main revenue driver, generated $82.01 billion—about $1.41 billion below expectations, Reuters reported.
Alphabet’s cash burn accelerated during the quarter as the company ramped up spending to expand its cloud capacity and invest in artificial intelligence. The company recorded a $7.66 billion operating income loss in “Alphabet-level activities,” which it attributed primarily to expenses related to AI research and development, according to Reuters.
Despite the overall earnings shortfall, Google Cloud was a bright spot in the results. Cloud revenue more than doubled to $30.7 billion, exceeding analyst expectations and reflecting growing demand from corporate customers, according to the Wall Street Journal and Euronext. However, this strong performance was not enough to offset the impact of weaker results in the core advertising and services divisions.
Alphabet’s services business, which includes search, YouTube, and other products, reported $96.3 billion in revenue, falling short of analyst expectations of $98.5 billion, according to the Wall Street Journal. The company’s advertising revenues also missed estimates, contributing to the negative market reaction.
Chief business officer Philipp Schindler attributed the slowdown in search advertising growth to increased use of “AI Mode,” a chatbot interface for Google Search that is still in an experimental phase for advertising, according to Euronext. This shift in user behavior is being closely watched by investors as Alphabet seeks to balance innovation with its core revenue streams.
The company’s heavy investment in AI and cloud infrastructure reflects a broader industry trend, as technology giants race to build out capabilities in generative AI and related services. However, the scale of Alphabet’s spending has sparked concerns among investors about both the risk of overspending and the need to keep pace with competitors.
Why it matters
Alphabet’s disappointing results and subsequent share price drop highlight the challenges facing major technology companies as they navigate a rapidly changing digital landscape. The company’s increased spending on AI and cloud infrastructure, while essential for long-term competitiveness, is putting pressure on short-term profitability and raising questions about the sustainability of its growth model.
The weaker-than-expected performance in Google’s core advertising business, which brought in $82.01 billion—below the $83.4 billion anticipated by analysts, according to Euronext—underscores the risks associated with shifts in user behavior and the adoption of new AI-driven interfaces. As Alphabet experiments with “AI Mode” in search, investors are watching closely to see whether the company can successfully monetize these innovations without eroding its main revenue streams.
The results also reflect broader market anxieties about the costs and benefits of large-scale AI investment. Alphabet’s $7.66 billion operating income loss in activities related to AI research, as reported by Reuters, signals both the company’s commitment to staying at the forefront of technological change and the financial risks inherent in that strategy. The coming quarters will be critical for Alphabet as it seeks to reassure investors and demonstrate that its investments can deliver sustainable returns.
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