- Alphabet shares fell 13.7%, marking the largest drop on record for the stock
- Alphabet's net profit declined 25% YoY to $26.17 billion in Q3, missing estimates
- Capital expenditure doubled to $51.4 billion amid rising AI and data center investments
Alphabet shares extended their decline to 13.7% on Thursday, marking the stock's biggest drop on record, as disappointing quarterly earnings, mounting artificial intelligence (AI) costs and concerns over Google's advertising growth weighed on investor sentiment.
The selloff wiped out hundreds of billions of dollars in market value, reflecting growing unease over whether Alphabet's heavy investments in AI infrastructure will generate returns quickly enough to justify the spending.
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The Google parent reported a 25% year-on-year decline in net profit to $26.17 billion for the July-September quarter, compared with $34.98 billion a year earlier. Revenue rose 25% to $127.58 billion but missed FactSet analysts' estimate of $127.97 billion.
Adjusted earnings came in at $2.67 per share, below Wall Street expectations of around $3.02, according to LSEG data. Reported earnings stood at $2.12 per share, down from $2.87 in the year-ago quarter.
A key concern for investors was the scale of Alphabet's AI spending. The company reported negative free cash flow of $9.1 billion in the September quarter, against expectations of a near-breakeven performance.
Capital expenditure surged to $51.4 billion, more than double the year-ago level, as Alphabet expanded its data centres, computing capacity and AI infrastructure. This marked the second consecutive quarter of negative free cash flow, following an outflow of $5.9 billion in the June quarter.
Alphabet retained its 2026 capital expenditure guidance of $195 billion to $205 billion. Chief Financial Officer Anat Ashkenazi indicated that spending would rise significantly in 2027, adding to concerns about the sustainability of its investment cycle.
Reported profitability was also affected by an $8.7 billion loss on equity investments.
Google's core advertising business offered limited relief. Revenue from Google Search and other advertising rose 12% year-on-year to $63.35 billion, slowing from 17% growth in the previous quarter.
YouTube advertising revenue increased 9% to $11.21 billion, while total Google advertising revenue reached $82.01 billion. The performance renewed concerns about competition from AI-powered search tools and the challenge of monetising AI-generated answers.
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Google Cloud, however, delivered strong growth. Revenue more than doubled, rising 103% to a record $30.71 billion from $15.16 billion a year earlier, driven by demand for AI infrastructure and enterprise services. Its order backlog reached $561 billion.
Alphabet CEO Sundar Pichai said the company had crossed an annualised revenue run rate of $500 billion. He also said Google's Gemini AI application had surpassed one billion users.
Despite strong cloud demand and continued AI adoption, investors are increasingly focused on the cost of maintaining Alphabet's growth ambitions and the time required for these investments to translate into stronger cash generation.
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