Alphabet Shares Plunge 10% as Profit Slides 25% and AI Spending Doubles

Alphabet shares fell more than 10% in after-hours trading on Wednesday, erasing tens of billions of dollars in market value from the $4 trillion tech giant. Investors reacted to a profit miss, a slowdown in advertising and a spending bill that keeps climbing.

Net profit slid 25% from a year earlier to $26.2bn in the July-to-September quarter, or $2.12 a share. That came in well short of expectations among analysts surveyed by FactSet. Alphabet also booked an $8.7bn loss on its equity investments, which it attributed to its stake in SpaceX, the Elon Musk-led company whose shares have struggled since going public in June.

Revenue told a different story. Sales rose 25% to $127.6bn, slightly below the roughly $128bn analysts had forecast. The problem was not the top line. It was the gap between what Alphabet earns and what it now spends to chase artificial intelligence.

Where did the growth slow down?

Advertising revenue grew 11% to $82bn, short of expectations. Google's search business, still the company's largest source of income, rose 12% to $63.4bn. That marks a slowdown from 17% growth in the previous quarter.

YouTube, now the most-watched content provider on American TV screens, saw ad revenue grow 9% to $11.2bn, down from 13% growth the quarter before. There was one bright spot in the unit: YouTube Music and Premium passed 150 million subscribers worldwide, including trials.

The contrast sits inside the company itself. Search decelerates, and cloud accelerates.

What is carrying the company?

Google Cloud, which rents computing power and AI tools to businesses, saw revenue jump 103% to $30.7bn, ahead of analyst expectations. Operating income for the unit tripled to $11.1bn. The company said sales of its in-house AI chips, known as TPUs, contributed significantly to that growth.

Google now sells those TPU chips to outside companies as well, a growing challenge to market leader Nvidia. OpenAI reportedly plans to buy some of the chips. Anthropic, the maker of the Claude chatbot and one of Google's largest cloud customers, has committed to using up to one million Google AI chips.

Alphabet's "Other Bets" division, which includes the robotaxi company Waymo, posted revenue of $372m and an operating loss of $2bn. Waymo now provides more than 500,000 paid rides per week across 15 US metropolitan areas and aims to reach 1 million weekly rides by the end of the year.

Why is the spending alarming investors?

Alphabet spent $51.4bn on capital expenditures during the quarter, mostly on datacenters and AI chips. That is more than double the $24bn a year earlier. The company forecast capex of between $195bn and $205bn for 2026, and said it would continue to increase spending significantly in 2027.

"I would broadly think of all of this as a long-range planning process, not a short-term allocation exercise," Sundar Pichai, the Google CEO, told analysts of the company's investment splurge.

The spending, which included a fine paid to the European Union, outstripped the cash generated by Alphabet's businesses for a second straight quarter, leaving a $9.1bn gap. During the quarter, Alphabet raised $28.7bn by selling bonds and $12.4bn by issuing new shares to help pay for its AI ambitions. A company of this scale is now borrowing to fund its buildout.

Has Google fixed its AI delays?

Google has stepped up the pace of its AI releases since a delay to a flagship model in July raised questions about whether it was falling behind rivals OpenAI and Anthropic. It launched Gemini 4 at the end of September and later released a version focused on cybersecurity.

The Gemini app has reached 1bn users. Google's AI models now process nearly 32bn tokens, or units of text, per minute, more than four times the level of a year ago, the company said.

One legal cloud lifted in September, when a US judge declined to order Google to sell off parts of its advertising technology business and imposed restrictions on how it operates instead.

The market's verdict on Wednesday was blunt: cloud growth at 103% does not yet outweigh a 25% profit decline and a capex bill approaching $205bn next year. Pichai has framed the spending in years, not quarters. Investors will now test whether that patience holds.