Alphabet Shares Drop as Ad Growth Slows and AI Spending Surges
Alphabet reports profit miss and rising capital expenditures despite strong performance in cloud computing.
1Market Reaction to Earnings
Alphabet shares declined over 10 percent in after-hours trading following a quarterly profit miss. Net profit fell 25 percent year-over-year to 26.2 billion dollars, missing analyst expectations. The company also reported an 8.7 billion dollar loss on equity investments, specifically linked to its stake in the Elon Musk-led company SpaceX.
2Advertising Revenue Deceleration
Total revenue reached 127.6 billion dollars, slightly below the 128 billion dollar forecast. Advertising revenue grew 11 percent to 82 billion dollars, while search business growth slowed to 12 percent from 17 percent in the previous quarter. YouTube advertising also saw a decline in growth, dropping to nine percent from 13 percent.
3Cloud and AI Infrastructure
Google Cloud revenue surged 103 percent to 30.7 billion dollars, significantly outperforming analyst expectations. This growth was largely driven by sales of in-house TPU chips. Operating income for the cloud unit tripled to 11.1 billion dollars, as the company begins selling these specialized AI chips to external firms like OpenAI.
4Aggressive Capital Expenditure Strategy
Capital expenditures reached 51.4 billion dollars this quarter, more than doubling the 24 billion dollars spent a year ago. The company forecasts total 2026 spending between 195 and 205 billion dollars. CEO Sundar Pichai characterized these massive investments as a long-range planning process rather than a short-term capital allocation exercise.
5Funding the AI Ambitions
Alphabet’s spending, compounded by a European Union fine, exceeded cash generated by operations for two consecutive quarters, creating a 9.1 billion dollar gap. To bridge this, the company raised 28.7 billion dollars through bond sales and 12.4 billion dollars by issuing new shares to sustain its ongoing AI infrastructure development.
6Waymo Operational Expansion
The 'Other Bets' division, featuring robotaxi operator Waymo, reported 372 million dollars in revenue against a 2 billion dollar operating loss. Waymo currently facilitates over 500,000 paid rides weekly across 15 US metropolitan areas. The company maintains an ambitious target to reach one million weekly rides by the end of 2026.
7Gemini Model Scaling
Google has accelerated AI releases following a July model delay, launching Gemini 4 in late September. The Gemini app has reached one billion users, with models now processing 32 billion tokens per minute. This represents a fourfold increase in processing capacity compared to the same period last year for the company.
8Strategic Competitive Positioning
Google faces ongoing pressure from rivals like OpenAI and Anthropic, the latter being a major cloud customer committed to using one million TPU chips. Despite a US judge declining to force a divestiture of its ad-tech business, the company remains focused on scaling its proprietary hardware to challenge Nvidia's market dominance.