Alphabet posted negative free cash flow of $9.07 billion for the third quarter, which proved much steeper than the negative $2.70 billion projected by market analysts. Search advertising revenue rose 12% to $63.35 billion, but it still missed expectations due in part to lower monetization in AI Mode. To address this weakness and counter rivals like ChatGPT and Claude, the company plans to scale ads across its AI Overviews and AI Mode products while keeping its full-year capital expenditure forecast intact.
Key points
A closing drop exceeding 9.77% would mark Alphabet's worst single-day post-earnings decli…: A closing drop exceeding 9.77% would mark Alphabet's worst single-day post-earnings decline since its 2004 market debut.
Management maintains a full-year capital expenditure outlook between $195 billion and $20…: Management maintains a full-year capital expenditure outlook between $195 billion and $205 billion despite mounting cash burn.
Google is expanding advertisements into AI Mode and AI Overviews to offset competitive pr…: Google is expanding advertisements into AI Mode and AI Overviews to offset competitive pressure from alternative AI chatbots.
Sources checked by our analysis pipeline: 1
Alphabet shares were sharply down in premarket trading on Thursday while Microsoft rose as investors focused on the tech giants' latest spending and free cash flow numbers in their third-quarter earnings.
Alphabet was 10% lower in premarket trade while Microsoft was nearly 4% higher.
If Alphabet closes more than 9.77% lower on Thursday, it would be its worst post-earnings reaction ever. The company went public in 2004.
Microsoft reported $45.2 billion in capital expenditures and finance leases during the third quarter, which was 30% higher than a year ago, but below analyst projections of $50.67 billion. Free cash flow fell 27% to $18.63 billion but remained positive.
Alphabet, in contrast, reported negative free cash flow of $9.07 billion for the third quarter, which fell much further than the $2.70 billion analysts expected by analysts. The Google parent maintained its full year capital expenditure guidance of between $195 billion and $205 billion.
The earnings report comes as investors scrutinize AI spending plans of tech companies and are focusing on the returns on those investments.
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