Alphabet shares fell more than 10% after the company missed Wall Street estimates for Q3 revenue and earnings and reported negative free cash flow. The company held its 2026 capex forecast unchanged and said spending will rise significantly in 2027.
Alphabet shares slumped more than 10% after the search giant reported a drop in free cash flow during the third quarter. The result is a worrying sign for the artificial intelligence trade, according to CNBC.
Revenue and earnings miss estimates
Adjusted earnings per share came in at $2.67, against $3.02 expected by analysts polled by LSEG. Revenue reached $127.58 billion versus $128.22 billion expected.
Revenue grew 25% from a year ago, but the company posted its first top-and-bottom-line miss in nearly four years. Net income fell to $26.17 billion, or $2.12 per share, from $34.98 billion, or $2.87 per share, a year earlier.
Search revenue grew 12% to $63.35 billion, short of a $64.96 billion estimate. Operating income totaled $40.58 billion, missing a $43.19 billion forecast from FactSet.
Negative free cash flow and rising debt
Alphabet reported negative free cash flow of $9.07 billion, far below the $2.70 billion analysts expected. Meanwhile, long-term debt climbed to $125.1 billion, up from $21.6 billion a year earlier, an increase of about 479%.
Capital expenditures totaled $51.36 billion in Q3, under the $55.09 billion analysts expected. Alphabet maintained its full-year capex forecast after lifting guidance to between $195 billion and $205 billion in Q2 from $190 billion.
Annual capex is expected to top $200 billion before exceeding $300 billion in 2027. According to finance chief Anat Ashkenazi on the earnings call: "We continue to expect our capex to increase significantly in 2027".
Cloud beats while Gemini reaches 1 billion users
Cloud revenue more than doubled to $30.7 billion, surpassing the $28.7 billion analysts expected. Still, Jefferies analyst Brent Thill said the cloud business was the only one that beat, and that it did not beat by much.
Google said its Gemini app reached 1 billion users, the fastest-growing product in its history. Alphabet also booked a loss of $8.66 billion from equity holdings in Q3, after a $99.03 billion windfall from those holdings in Q2.
Source: CNBC
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