Alphabet shares slumped more than 10% in extended trading on October 28 after the Google parent reported weaker-than-expected quarterly results. Investors focused on slowing advertising growth, disappointing earnings and mounting costs associated with its artificial intelligence expansion. The sell-off highlighted concerns over whether the company's AI investments can deliver sufficient financial returns. (Sources: CNBC, The Wall Street Journal, Reuters)
Alphabet reported third-quarter revenue of $127.6 billion, up 25% from a year earlier but below Wall Street's estimate of $128.2 billion, according to Reuters. The shortfall showed that strong growth across its business was not enough to satisfy investors, who had been expecting more from the technology giant amid a global boom in AI-related spending.
Google's advertising business emerged as a key concern after revenue from ads reached approximately $82 billion, missing analyst expectations by around $1.4 billion. Search and other advertising revenue rose 12% year on year to $63.3 billion, while YouTube advertising revenue increased 9% to $11.2 billion. Investors are watching whether AI-powered search experiences can sustain advertising growth as user behaviour evolves.
Google Cloud delivered one of the strongest performances in the quarter, with revenue more than doubling to $30.7 billion. Demand for AI infrastructure, enterprise AI solutions and cloud services helped the division exceed market expectations. Its growing business backlog also underscored strong customer commitments, offering Alphabet an important source of future growth even as its advertising business faces pressure.
Alphabet's aggressive AI infrastructure expansion came at a significant cost. The company reported negative free cash flow of approximately $9.1 billion for the quarter, compared with analyst expectations of a near break-even performance. Spending on data centres, computing capacity and AI research has intensified investor concerns about the financial burden of competing in the AI race.