Alphabet shares tank 13% as Q3 profit falls 25%, AI spending weighs

Alphabet shares plunged over 13% on Thursday, putting the stock on track for its biggest single-day decline on record, after the Google parent reported weaker-than-expected quarterly revenue and a sharp fall in net profit. The sell-off threatened to wipe out nearly $500 billion in the company’s market value, as investors weighed strong cloud growth against rising artificial intelligence spending and weaker cash generation.

Alphabet’s net income available to common stockholders fell 25.2% year-on-year to $26.17 billion in the September quarter, compared with $34.98 billion a year earlier. Diluted earnings per share declined to $2.12 from $2.87.

Revenue, however, rose 24.7% to $127.58 billion from $102.35 billion in the year-ago quarter, but missed analysts’ expectations of $128.2 billion, according to data compiled by LSEG.

The fall in profit came despite a 30% increase in operating income to $40.58 billion. Alphabet recorded an $8.66 billion loss on equity securities during the quarter, compared with a gain of $10.73 billion a year earlier. The company attributed the deterioration in other income partly to unrealised losses on marketable equity investments, largely from SpaceX.

Google Cloud revenue more than doubles

Google Cloud was the standout performer, with revenue surging 103% to $30.71 billion, driven by demand for AI infrastructure, enterprise AI solutions and its cloud platform. Google Services revenue increased 11% to $96.3 billion, while Search and other revenue grew 12% to $63.35 billion.

Sundar Pichai, CEO of Google and Alphabet, said the company was seeing strong momentum across its businesses.

“We had a strong quarter and are now on a half-trillion dollar revenue run rate,” Pichai said in the earnings release. “Our deep full stack approach is driving momentum across the business, with Alphabet revenues growing 25% year-over year.”

He added that AI investments were boosting search activity. “Our AI investments are driving overall Search query growth, including commercial queries. In fact, our year-over-year query growth rate is the highest it’s been in the last five years,” Pichai said.

However, the scale of investment remains a concern for investors. Alphabet’s capital expenditure reached $51.36 billion in the quarter, while free cash flow turned negative at $9.07 billion, compared with positive free cash flow of $24.55 billion a year earlier.

Pichai said Google Cloud revenue growth was “powered by huge demand for our AI infrastructure and AI solutions”, adding that demand for the company’s tensor processing unit (TPU) systems was also strong.