Alphabet's July-September results revealed a sharp 25% drop in quarterly net profit alongside missed revenue and adjusted earnings estimates. Surging infrastructure expenses pushed free cash flow to negative $9.1 billion, far below market expectations, while capital expenditures more than doubled. Concerns deepened as leadership signaled that capital spending will continue to climb through 2027 beyond already elevated projections. Meanwhile, core advertising revenue growth decelerated as the company faces hurdles monetizing AI features within search.
Key points
Negative free cash flow of $9.1 billion highlighted the immediate financial toll of the c…: Negative free cash flow of $9.1 billion highlighted the immediate financial toll of the company's aggressive artificial intelligence investments.
Projections of increased capital expenditures into 2027 amplified market worries regardin…: Projections of increased capital expenditures into 2027 amplified market worries regarding the timeline for profitability on AI infrastructure.
Core search and advertising revenue growth slowed to 12%, trailing expectations as user b…: Core search and advertising revenue growth slowed to 12%, trailing expectations as user behavior shifts and AI monetization remains challenging.
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Alphabet shares fell 13.4% during US trading, wiping out hundreds of billions of dollars in market value and putting the stock on course for one of its steepest single-day declines.
The selloff came after the company reported a 25% year-on-year decline in net profit to $26.17 billion for the July-September quarter, compared with $34.98 billion in the corresponding period last year. Revenue increased 25% to $127.58 billion from $102.35 billion a year earlier, although it fell short of the $127.97 billion expected by analysts surveyed by FactSet.
Alphabet reported earnings of $2.12 per share, compared with $2.87 a year earlier. Its adjusted earnings of $2.67 per share also missed Wall Street expectations of around $3.02, according to LSEG data.
The disappointing earnings performance came despite strong demand for Google's cloud computing and AI services, which helped the company deliver its 13th consecutive quarter of double-digit revenue growth.
Alphabet's quarterly earnings were affected by an $8.7 billion loss on equity investments, which reduced reported profitability.
AI spending sends cash flow into negative territory
Investors were also concerned about the growing cost…
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