Shares of Alphabet, the parent company of Google, lost more than 10% in after-hours trading in the US following the publication of financial results for the third quarter of 2026. Investors were disappointed by the decline in net profit, the slowdown in the advertising business, and record spending on artificial intelligence development. Even the rapid growth of Google Cloud could not offset the negative market reaction.

The Guardian reported this on October 28. The company disclosed its financial performance in a quarterly report filed with the US Securities and Exchange Commission (SEC).

For July-September, Alphabet's net profit attributable to shareholders fell by about 25% – from $35 billion to $26.2 billion. Earnings per share were $2.12, compared with $2.87 a year earlier, and fell short of analysts' expectations.

At the same time, the company's quarterly revenue grew by 25%, to $127.6 billion, although it slightly missed Wall Street forecasts. Operating profit rose by 30%, to $40.6 billion. Thus, the drop in net profit does not mean that Alphabet's core businesses have become unprofitable.

One of the main reasons for the deterioration in the final financial result was $8.7 billion in losses from the revaluation of investments in securities. According to The Guardian, a significant portion of these losses is related to Alphabet's investment in Elon Musk's SpaceX. After accounting for the tax effect, they reduced the company's net profit by about $6.7 billion.

However, investors' attention was drawn not only to the accounting losses. Much more serious questions arose about the cost of the massive rollout of artificial intelligence infrastructure.

In the third quarter, Alphabet's capital expenditures reached $51.4 billion – more than double last year's figure. The bulk of the funds was directed to the construction of data centers, servers, and specialized AI processors. Meanwhile, operating cash flow was only $42.3 billion.

As a result, the company's free cash flow turned negative, at minus $9.1 billion. This is the second consecutive quarter in which Alphabet's capital expenditures exceed the cash generated from operating activities.

The company forecasts that for the full year 2026, capital investments will total $195-205 billion. In 2027, spending is planned to increase even further. This strategy heightens investor concerns about the payback period for AI infrastructure.

At the same time, the rapid build-up of computing power is already yielding results for Google's cloud business.

Google Cloud's revenue for the quarter surged 103%, to a record $30.7 billion. The division's operating profit more than tripled, to $11.1 billion. Growth was driven by corporate orders for AI infrastructure, cloud services, and Google's own TPU processors.

However, the company's largest business – search advertising – is showing signs of slowdown. Revenue from search and related services grew by 12%, to $63.4 billion, compared with 17% growth in the previous quarter. YouTube advertising revenue increased by 9%, to $11.2 billion.

Investors fear that the spread of AI assistants and new ways of searching for information could change Google's traditional advertising model. At the same time, maintaining competitive positions requires ever-increasing spending on technology and computing power.

Alphabet CEO Sundar Pichai emphasized that AI investments are supporting the development of both search and cloud businesses. According to the company, the Gemini app has already reached one billion users.

However, the stock market reaction suggests that investors are increasingly evaluating not only the growth rates of the AI business, but also its ability to generate sufficient cash to fund further investments. This discrepancy between high revenue and even higher capital needs was one of the main factors in the fall of Alphabet shares.

Based on materials: The Guardian, Alphabet – quarterly report to the SEC