Alphabet Q3 Earnings: Cloud Surges, Search Misses, Cash Flow Turns Negative

Alphabet reported its third-quarter 2026 earnings after the market closed on October 28, 2026, with investors focused on whether heavy artificial intelligence investments are beginning to pay off. The company's shares had fallen 5.88 percent over the past month ahead of the announcement.

Google Cloud revenue more than doubled, growing 82 percent from the previous quarter as corporate customers embraced AI technology. However, this growth came at a significant cost, with capital spending doubling to $44.92 billion last quarter.

“In a market worried about AI cannibalizing the franchise, investors need to see search accelerating, not decelerating.”

Total revenue reached $119.80 billion, up 24.2 percent year over year and ahead of the $116.91 billion estimate. Despite the revenue beat, advertising growth slowed in the market-dominating search engine, resulting in a $1.4 billion miss in advertising revenue.

Free cash flow turned negative at $9.1 billion, versus analyst expectations that it would come close to breaking even. Alphabet burned $5.9 billion last quarter, marking the first time it went into negative territory in 22 years as a public company.

Long-term debt rose as the company doubled its debt and suspended buybacks to fund AI development. Chief Financial Officer Anat Ashkenazi said Alphabet plans to significantly increase 2027 capital expenditures from this year's spending forecasts of $195 billion to $205 billion.

Shares fell 10 percent after hours as investors worried about AI cannibalizing the search franchise. Rival Microsoft, which also reported results on Wednesday, saw shares rise more than 5 percent fueled by positive free cash flow that outstripped analyst estimates.