Alphabet reported third-quarter 2026 revenue below Wall Street forecasts on Wednesday, alongside a cash deficit substantially larger than analysts anticipated. The results come as investors seek clarity that heavy artificial intelligence investment by the largest cloud operators can generate returns sufficient to justify their spending.
Following the earnings release, shares of Alphabet plunged 9.6% to around $290 in after market trading.
Alphabet’s overall operating income came to $40.58 billion against a forecast of $43.2 billion. Net profit declined by approximately one-quarter to about $26.2 billion.
Group revenue reached $127.6 billion, an increase of about 25% from a year earlier, but did not meet the $127.9 billion consensus estimate. Free cash flow was negative $9.07 billion, compared with an expected deficit of $2.7 billion.
Earnings per share dropped 26% year on year to $2.12, compared with the $3.01 estimate. Losses on non-operating investments accounted for most of that shortfall, rather than weakening performance in the core business.
Equity holdings had contributed $99.03 billion in revenue during the second quarter, driven by Alphabet’s stakes in SpaceX and Anthropic. The same category recorded an $8.66 billion loss in the third quarter.
Google Cloud provided a stronger set of results than the group overall. Revenue of $30.7 billion represented more than twice the year-earlier total and surpassed analysts’ $29.9 billion projection. Demand for AI infrastructure, TPU systems and enterprise AI solutions continued to support the division’s expansion.
The business generated $11.1 billion in operating income, up 209% from a year earlier and above the $9.75 billion forecast. Its operating margin reached 36.2%, showing strong profitability even as Alphabet committed substantial funds to AI infrastructure.
Alphabet’s spending on AI expansion has helped drive revenue growth at the cloud division, which houses its suite of AI offerings.
Consumer adoption also increased. The Gemini app reached 1 billion users, according to Google, which described it as the company’s most rapidly growing product to date. Token processing across Google’s own models approached 32 billion per minute, more than four times the volume recorded a year earlier.
On the analyst call, Chief Executive Sundar Pichai reported strong demand for the recently introduced Argon Gemini model. He also said Carbon, the latest model announced Wednesday, has better performance across nearly all domains when compared to Argon.
Elsewhere in the business, Google Search advertising produced $63.35 billion in revenue. That was about 12% higher than a year earlier, though below the roughly $65 billion analysts had projected for a key group income source.
Third-quarter capital expenditure was $51.36 billion, below analysts’ expectation of $55.09 billion, as questions persisted over the scale of the AI infrastructure buildout.
Alphabet left its full-year spending guidance intact. During the second quarter, it had increased the forecast from $190 billion to a range of $195 billion to $205 billion. Annual capital expenditure is expected to surpass $200 billion before rising above $300 billion in 2027.
