Alphabet’s cloud business more than doubled its revenue in the third quarter, while the search operation that has financed the company’s expansion for two decades grew more slowly than analysts expected. The gap came as capital expenditure rose above $51 billion for the quarter and the company set out far larger spending plans for the next two years.
Alphabet reported third-quarter revenue of $127.6 billion on Wednesday, up 25% from a year earlier. Google Cloud revenue rose 103% to $30.71 billion.
Search and other revenue increased 12% to $63.35 billion, against analyst expectations of 15%. Excluding currency movements, search growth slowed three percentage points from the previous quarter.
Sundar Pichai, Alphabet’s chief executive, said on the earnings call that query growth was at its highest rate in the last 5 years. Philipp Schindler, the chief business officer, said the company was extending high-quality advertising within AI Overviews and AI Mode to more users and queries, including bringing its monetisation footprint worldwide for the first time.
The investment needed to build the artificial intelligence infrastructure is weighing on cash generation. Alphabet spent $51.4 billion on capital expenditures in the quarter, more than double the amount a year earlier, and expects capex to reach $200 billion in 2026 before rising to $300 billion in 2027.
Free cash flow was negative $9.1 billion. The quarter’s earnings also included a one-time $8.7 billion mark-to-market hit on Alphabet’s SpaceX stake.
On Thursday, Alphabet’s Class A shares fell 12.6% to $283.82, their worst day since they began trading in 2004. The fall erased about $482 billion in market value.
The previous worst day for the stock came in March 2020, when it dropped 11.6%.
Justin Post, a BofA analyst, cut his price target to $380 from $430 and reduced the valuation multiple he was prepared to pay to 24 times from 27, citing concern over whether the AI spending will produce adequate returns.
By Bank of America’s count, Google search is valued at about 10 times earnings. The S&P 500 trades at 18.7x forward earnings, according to FactSet, while energy, the market’s cheapest sector, trades at 13x.
Cloud remains a central part of Alphabet’s case for the spending. Its operating margin rose to 36.2% in the quarter from 23.7% a year earlier. Yet Anat Ashkenazi, Alphabet’s chief financial officer, warned that Google Cloud could face near-term margin pressure because the company is using third-party computing capacity to meet demand.
Post now models $75 billion in 2027 sales of Google’s in-house AI chips, known as TPUs, to outside customers.
The pressure on search comes as artificial intelligence changes how users move through results. A Pew Research Center study published in July 2025 found that users who saw an AI summary clicked a traditional search result on about 8% of visits, compared with 15% when no summary appeared.
Larry Page and Sergey Brin, Alphabet’s co-founders, lost an estimated $60 billion combined in the share-price decline, according to Forbes estimates.
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