Google parent Alphabet has missed Wall Street profit and revenue expectations, and AI spending accelerated its cash burn, sending its shares down more than 10 per cent in extended trading.
Capital expenditures, driven by AI, will increase significantly in 2027, said Chief Financial Officer Anat Ashkenazi, adding this year’s capex forecast was unchanged.
Ashkenazi said she also expected near-term margin pressure from the use of third-party cloud capacity.
The tech giant reported negative free cash flow of $US9.07 billion, compared with analyst expectations that it would come close to breaking even, according to data compiled by LSEG.
The third quarter results reflect the huge costs of the AI buildout, with investors in the sector concerned both by potential overspending and the risk of falling behind rivals by not spending enough.
The quarterly cash burn is an increase from $US5.9 billion in the prior quarter, which was the first time the company went into the negative in its 22-year history as a public company.
Alphabet’s cash burn was driven by spending to boost cloud capacity and fund AI research. It reported a $US7.66 billion operating income loss in “Alphabet-level activities,” which it said primarily reflected expenses related to AI research and development.
The tech giant’s total revenue for the third quarter was $US127.6 billion, short of analysts’ estimate of $US128.2 billion, according to LSEG data.
The revenue miss was caused by Google’s core advertising business that reported $US82.01 billion in revenue, about $US1.41 billion short of expectations.
Net income available to common shareholders fell 25 per cent to $US26.17 billion, and adjusted earnings per share of $US2.67 missed Wall Street targets of $US3.02.
Sundar Pichai, CEO of Google and Alphabet, said in a statement the quarter was strong and that the company is “now on a half-trillion dollar revenue run rate.”
“Our deep, full stack approach is driving momentum across the business,” he said, pointing to the 25 per cent revenue growth year-over-year.
Pichai also said the Gemini app, its artificial intelligence assistant, has reached one billion users, which makes it the fastest-growing product in Google’s history.
Revenue at Google Cloud exceeded estimates and more than doubled to $US30.71 billion in the third quarter ended September 30, but was not enough to make up for the ad-side performance.
Cloud chief Thomas Kurian said sales of Google’s tensor processing units (TPUs), which compete with Nvidia’s GPU chips, had become a meaningful contributor to his business unit.
The third-largest cloud services provider globally, behind Amazon Web Services and Microsoft’s Azure, Google Cloud has continued to expand enterprise commitments, supported by multi-year cloud and AI infrastructure deals across cybersecurity, retail and financial services.
with AP
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