Alphabet reported third-quarter results on Wednesday, October 28, that captured both sides of the artificial intelligence boom. Revenue rose 25 percent to 127.577 billion dollars for the quarter ended September 30, up from 102.346 billion dollars a year earlier, a 13th consecutive quarter of double-digit growth. Yet the Google parent missed expectations on revenue, earnings and operating income, and shares fell more than 8 percent after hours.
Google Cloud was the clear standout. Cloud revenue jumped 103 percent to 30.709 billion dollars, from 15.157 billion dollars a year earlier, beating the average estimate of about 29.57 billion dollars reported by Reuters. Cloud operating income rose to 11.121 billion dollars from 3.594 billion dollars. Alphabet said growth was led by demand for enterprise AI infrastructure and AI solutions, along with core services, and that sales of TPU systems — built around its own Tensor Processing Unit chips — were also a meaningful contributor.
Google Services grew more steadily. Revenue there rose 11 percent to 96.302 billion dollars, with Search and other revenue up 12 percent to 63.350 billion dollars, below the 64.96 billion dollars analysts expected. YouTube advertising brought in 11.207 billion dollars, subscriptions, platforms and devices added 14.290 billion dollars, and total Google advertising revenue reached 82.012 billion dollars. Services operating income climbed to 39.157 billion dollars from 33.527 billion dollars a year earlier.
Operating performance and bottom-line profit told different stories. Consolidated operating income rose 30 percent to 40.576 billion dollars, for a margin of 31.8 percent, but net income available to common stockholders fell to 26.170 billion dollars, or 2.12 dollars per diluted share, from 34.979 billion dollars, or 2.87 dollars, a year earlier — well below the roughly 3.02 dollars analysts had forecast. The swing came largely from investments: Alphabet recorded a net loss of 8.664 billion dollars on equity securities, compared with a gain of 10.734 billion dollars a year earlier, a change it said cut net income by about 6.7 billion dollars and earnings by 55 cents a share.
Cash flow showed the cost of the buildout most starkly. Alphabet spent 51.355 billion dollars on property and equipment, up about 114 percent from a year earlier, while operating cash flow fell to 42.290 billion dollars. Free cash flow was negative 9.065 billion dollars, a second consecutive negative quarter after negative 5.86 billion dollars in the second quarter, and far larger than the roughly 36 million dollar outflow analysts expected, according to LSEG data reported by Reuters. Trailing twelve-month free cash flow remained positive at 19.747 billion dollars. To fund the spending, Alphabet sold 12.4 billion dollars of stock, raised 28.7 billion dollars from notes, made no share repurchases, and ended the quarter with long-term debt of 125.102 billion dollars, up from 46.547 billion dollars at the end of 2025. Its full-year capital spending guidance stands at 195 billion to 205 billion dollars.
Chief executive Sundar Pichai pointed to scale as evidence the investment is working, saying the company is now on a half-trillion dollar revenue run rate. He said Search query growth from a year earlier was the highest in five years, that first-party model APIs now process nearly 32 billion tokens per minute — more than four times a year ago — and that the Gemini app has reached one billion users, which he called the fastest-growing product in Google history. For investors, Wednesday's reaction suggests the question has shifted: not whether AI demand is real, as Cloud's doubling shows, but whether that growth can arrive fast enough to cover the cash the buildout is consuming.