Overview

Alphabet Inc. (NASDAQ: GOOG) posted third‑quarter results that missed Wall Street expectations, prompting an 8.5% decline in its share price on Wednesday.

Financial Performance

The company reported earnings per share of $2.12, falling short of the analyst consensus of $3.02 by $0.90. Revenue increased 25% year‑over‑year to $127.6 billion, narrowly surpassing the $127.22 billion estimate. Operating income rose 30% to $40.6 billion. However, research and development expenses climbed to $20.6 billion from $15.2 billion a year earlier, and non‑operating results deteriorated sharply: net other income of $12.8 billion in the prior year turned into a net expense of $8.2 billion, while an $8.7 billion loss on equity securities reduced net income by $6.7 billion, or $0.55 per diluted share after tax.

Cloud & AI Highlights

Google Cloud revenue surged 103% to $30.7 billion, and its operating income more than tripled to $11.1 billion. The division now operates 18 product lines each generating over $1 billion in annual sales. CEO Sundar Pichai noted that the company has reached a half‑trillion‑dollar annual revenue run rate driven by AI adoption. Google Cloud CEO Thomas Kurian said customers of the Gemini Enterprise platform more than quadrupled their spending year‑over‑year and that over 90% of Fortune 100 companies now use the platform. Pichai also announced progress on the new “Carbon” AI model, which outperforms Gemini 4 Argon and is slated for an initial rollout with U.S. government cybersecurity partners. Search queries are growing at their fastest pace in five years.

Capital Expenditure & Cash Flow

Capital expenditures for the quarter rose to $51.4 billion from $24 billion a year earlier, taking year‑to‑date spending to $132 billion. Alphabet reaffirmed its full‑year capex outlook of $195 billion to $205 billion, roughly in line with the analyst consensus of $202.21 billion. Free cash flow turned negative at $9.1 billion, driven by infrastructure spending, inventory build‑up of Tensor Processing Units, and an EU fine (amount not disclosed). The company disclosed $924 billion in future purchase commitments, reflecting the scale of its obligations as it expands infrastructure to meet AI demand.

Share Price Reaction

The earnings miss, combined with the sizable increase in expenses and negative free cash flow, outweighed the strong cloud growth narrative, resulting in an 8.5% drop in Alphabet’s share price.