Sundar Pichai, Alphabet’s chief executive, said the company’s artificial intelligence investments were increasing Search queries, including commercial queries. “Our AI investments are driving overall Search query growth, including commercial queries,” he said in a statement.
That assurance followed third-quarter results on Wednesday that missed analyst forecasts. Alphabet reported revenue of $127.6 billion, up 25% year over year, compared with the $128.22 billion expected by analysts polled by LSEG.
Google Search & other was the weak point. Revenue rose 12% to $63.35 billion, below the $64.96 billion analysts expected and down from 17% growth in the prior quarter. Search revenue growth had fallen from 19% in Q1 to 17% in Q2 and 12% in Q3.
Cloud was the major bright spot in the release. Revenue more than doubled to $30.7 billion, ahead of analyst expectations of $28.7 billion, while operating income reached $11.1 billion. Its backlog was roughly $560 billion, and management expects just over half of that to be recognised over the next 24 months.
Yet Cloud’s performance did not erase the broader miss. Adjusted earnings were $2.67 a share, against expectations of $3.02. Consolidated operating income rose 30% to $40.6 billion, below the $43.19 billion analysts had forecast.
On Thursday, Alphabet’s stock dropped about 10% in premarket trading, putting it on track for its largest-ever loss in market value.
The results also laid out the cost of Alphabet’s AI build-out. Free cash flow swung to negative $9.1 billion in the quarter, three times the estimated deficit, as capital expenditures reached $51.4 billion. Alphabet had negative free cash flow for the second consecutive quarter. Q2 had been the first negative quarter in the company’s history as a public company, at $5.9 billion negative.
Long-term debt rose to $125.1 billion from $46.5 billion at the end of 2025. Alphabet maintained its full-year 2026 capital expenditure forecast of $195 billion to $205 billion. Anat Ashkenazi, the chief financial officer, told analysts: “We continue to expect our capex to increase significantly in 2027, and will provide further details on our Q4 call”.
Philipp Schindler, Alphabet’s chief business officer, said the company was accelerating the rollout of Gemini models across its ads infrastructure to improve performance. He called a product listing ads update the biggest update to product listing ads in a decade.
Pichai said Search query growth was at its strongest level in five years. Alphabet also said the Gemini app had reached 1 billion users.
Michael O’Rourke, chief market strategist at JonesTrading Institutional Services, wrote: “After missing forecasts on essentially every key metric except cloud revenue tonight, Google is playing the AI Hunger Games from a position of weakness”.
The results leave an unresolved question. Alphabet is committing more money to AI infrastructure while Search advertising revenue is growing more slowly. The figures do not establish why Search growth has decelerated, or whether AI spending will ultimately strengthen the advertising business funding the build-out.
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