Alphabet shares slump about 10% after Google's parent misses forecasts and burns cash on AI
Shares in Google's parent company Alphabet fell more than 10% in after-hours trading after it missed analysts' forecasts for both revenue and profit for the first time in nearly four years. Heavy spending on artificial intelligence pushed free cash flow deep into negative territory, overshadowing a doubling of cloud revenue.
Alphabet reported third-quarter results on Wednesday, 28 October, that disappointed investors almost across the board. Revenue grew 25% from a year earlier to about $127.6 billion, but the company missed Wall Street forecasts for both sales and profit for the first time in nearly four years, according to CNBC. Net income fell to $26.17 billion, or $2.12 per share, from $34.98 billion, or $2.87 per share, a year ago, and operating income of $40.58 billion was below the $43.19 billion analysts expected.
The figure that worried markets most was free cash flow, which was negative at $9.07 billion, far worse than the $2.70 billion shortfall analysts had forecast. Capital spending reached $51.36 billion in the quarter. Alphabet kept its full-year forecast of $195 billion to $205 billion and finance chief Anat Ashkenazi said capex will "increase significantly in 2027". Long-term debt rose to $125.1 billion from $21.6 billion a year earlier. Results were also hit by an $8.66 billion loss on equity holdings, after stakes in companies including SpaceX and Anthropic had brought a gain of $99.03 billion in the previous quarter.
The bright spot was Google Cloud, where revenue more than doubled to $30.7 billion, ahead of the $28.7 billion expected. Cloud chief Thomas Kurian spoke of "extraordinary demand" from AI labs, financial institutions and other businesses. The Gemini app has reached 1 billion users, which Google calls the fastest-growing product in its history. Search revenue rose 12% to $63.35 billion, while YouTube advertising grew a slower 9% to $11.2 billion, according to Variety.
The shares fell more than 10% in extended trading, and the miss weighed on markets in Asia on Thursday morning, Reuters reported. Investors are increasingly asking when the huge sums the big tech groups are pouring into AI data centres will pay off.