Shares of Alphabet fell sharply as rapid growth in the Google parent’s new artificial-intelligence cloud segment failed to overcome disappointing results elsewhere in the business.
Google is trying to execute an ambitious data-center buildout that establishes Google Cloud as a leading AI cloud provider. While the early returns are solid, the costs are high: For the second straight quarter, Alphabet reported negative free cash flow, losing $9.1 billion.
Alphabet stock dropped 11.3% to $288.21 in after-hours trading. If those results hold, shares will be back in the red for 2026.
Alphabet entered Wednesday as one of the clearest early winners in the AI boom. Although investors once feared the company’s future prospects might be at risk from AI, search advertising is on pace to have its best annual sales growth since 2021. At over $60 billion, YouTube had the highest sales of any video streamer in 2025. And while Google Cloud was once in a distant third place behind Amazon Web Services (AWS) and Microsoft Azure, Google Cloud is now the fastest-growing of the lot.
The cloud business continued that momentum in the third quarter. Google Cloud more than doubled its revenue from last year and booked an operating profit of $11.1 billion, well above analysts’ estimate of $9.8 billion, per FactSet.
Instead, it was Google Services—a broad category that includes subscriptions, YouTube, and Google search advertising—that fell short of expectations. Operating income in Google Services totaled $39.2 billion, below the $40.8 billion Wall Street was looking for.
Foreign exchange dynamics were the largest driver behind a deceleration in search revenue growth, CEO Sundar Pichai said on the Wednesday conference call. The growth in search queries directed to “AI Mode” also had an impact, since Google sees lower monetization from those searches, Pichai said.
All told, Alphabet reported earnings of $2.12 a share for the quarter, down from $2.87 a year before and below analysts’ consensus estimate of $3.02. Revenue jumped 25% year over year to $127.6 billion, shy of Wall Street’s call for $128 billion.
Missing on earnings simply isn’t an option for companies asking investors to fund massive AI investments. Alphabet reported $51.4 billion in capital expenditures in the third quarter. The company expects to spend around $200 billion for the full year, implying another $68 billion in investments in the current fourth quarter.
Chief financial officer Anat Ashkenazi confirmed that those investments would “increase significantly” in 2027. Alphabet has $924 billion in future purchase commitments as of the end of the third quarter.
Capex already exceeded Alphabet’s substantial cash flow from operations last quarter, and Wall Street expects that to continue into 2028. As a result, the company has now gone three straight quarters without any share repurchases for the first time since 2015, according to FactSet.
Alphabet has been very aggressively raising capital to fund its runaway spending. Through the first three quarters of 2026, it has issued $85.2 billion in debt. The company has also raised $42.9 billion from share sales and $19 billion in mandatory convertible preferred stock.
Alphabet’s Anthropic counterparty risk came into sharp focus on Monday with the release of the startup’s prospectus for its initial public offering. “Google” is mentioned 109 times in the document. It’s a named competitor, a greater-than-5% shareholder after the IPO, and one of Anthropic’s most important suppliers.
Besides Google, Anthropic may be the largest user of Google’s Tensor Processing Unit (TPU) AI chips. It has an agreement with Google Cloud for $114.5 billion through 2033. There’s another cloud deal for TPUs that runs from 2028 through 2031 worth $125 billion to $150 billion, though Google may not be the sole service provider. In addition, Broadcom —which designs the chips with Google—is charging Anthropic another $161 billion to rent TPUs in five-year contracts.
Much of Google Cloud and TPU’s current and future success is dependent on Anthropic, and Alphabet’s stock may begin to move on Anthropic news, the same way Oracle gets buffeted by shifting OpenAI sentiment.