Investors turn on Google owner Alphabet after profit miss, ad slowdown and high spending
Shares in Google parent Alphabet fell more than 10% in after-hours trading Wednesday, erasing tens of billions in market value after the tech giant reported lower-than-expected profit and a slowdown in its advertising business.
The tech giant's advertising business showed signs of weakness, with ad revenue growing just 11% to $82bn, falling short of expectations. Google's search business, still its largest income source, saw growth slow to 12% from 17% in the previous quarter. YouTube's advertising revenue growth also decelerated to 9% from 13%.
The company booked an $8.7bn loss on its equity investments, primarily due to its stake in SpaceX, where shares have struggled since the company went public in June. Alphabet's 'Other Bets' division, including robotaxi company Waymo, posted $372m in revenue but an operating loss of $2bn.
Cloud Growth
Google Cloud emerged as a bright spot, with revenue jumping 103% to $30.7bn, exceeding analyst expectations. The company attributed this growth to sales of its in-house AI chips, known as TPUs, which contributed significantly to the unit's operating income tripling to $11.1bn.
I would broadly think of all of this as a long-range planning process, not a short-term allocation exercise.
AI Investments
Alphabet spent $51.4bn on capital expenditures during the quarter, more than double the $24bn from a year earlier, primarily on datacenters and AI chips. The company forecast capex spending between $195bn to $205bn for 2026 and indicated it would continue increasing spending significantly in 2027.
The company raised $28.7bn by selling bonds and $12.4bn by issuing new shares to fund its AI ambitions. Despite these investments, Alphabet's spending outstripped cash generated by its businesses for a second straight quarter, leaving a $9.1bn gap.
Google has accelerated its AI releases since a delay to a flagship model in July, launching Gemini 4 in September and a cybersecurity-focused version. The Gemini app has reached 1bn users, and Google's AI models now process nearly 32bn text units per minute, more than four times the level of a year ago.
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