Alphabet reported third-quarter revenue of $127.6 billion, up 25 percent from a year earlier, as Google Cloud more than doubled to $30.71 billion on surging demand for artificial intelligence infrastructure. The strong top line was overshadowed by a negative free cash flow of $9.07 billion, far deeper than analysts expected, and Alphabet shares fell more than 6 percent in extended trading after the results.
Cloud Carries The Quarter
Google Cloud was the clear standout of the quarter ended September 30, with revenue jumping 103 percent to $30.71 billion and beating the average analyst estimate of $29.57 billion. Alphabet is the third-largest cloud provider globally, behind Amazon Web Services and Microsoft Azure, and the result showed it capturing a growing share of enterprise AI workloads.
Enterprise appetite for cloud-based AI training and inference has stayed strong through the year, keeping data centre utilisation high and pushing major providers to accelerate infrastructure deployment. Alphabet said multi-year cloud and AI infrastructure deals across cybersecurity, retail and financial services supported the growth, easing investor concern that heavy capital spending might outpace near-term revenue gains.
Chief executive Sundar Pichai said the company was now on a half-trillion-dollar revenue run rate, with its deep full-stack approach driving momentum across the business. He also pointed to Search query growth at its fastest rate in five years, and to the Gemini app passing one billion users, as signs that AI features are reaching mainstream audiences.
Search Growth Slows While Spending Surges
Search advertising revenue rose 12 percent to $63.35 billion, a solid result but a slower pace than earlier in the year, and below analyst expectations. Operating income still increased 30 percent to $40.58 billion, showing that the core business remains highly profitable even as growth shifts toward cloud infrastructure.
Earnings per share fell to $2.12 from $2.87 a year earlier, including an $8.7 billion paper loss on Alphabet’s equity investments that reduced earnings by 55 cents per share. Depreciation also rose sharply as data centre investments flowed through expenses, and AI-related research and development costs weighed on the bottom line.
Capital expenditure reached $51.4 billion in the quarter, up 114 percent from a year earlier and up from $44.9 billion in the previous quarter. Through September, capital spending totalled $132 billion in 2026, exceeding operating cash flow of $127.1 billion, which explains why free cash flow went further into negative territory.
Why The Cash Burn Worries Investors
Negative free cash flow of $9.07 billion compared with an expected cash burn of $36 million, according to data compiled by LSEG, and marked a second quarter of negative free cash flow after a $5.9 billion June-quarter outflow. Investors weighed record revenue against a cash drain that was far larger than forecast, and the shares fell after hours.
The spending reflects a wider industry race: Alphabet, Microsoft, Amazon and Meta are projected to collectively spend well over $700 billion in 2026 expanding AI data centre capacity, chips and high-performance networking. Supply bottlenecks for advanced silicon and data centre power have persisted, but Alphabet’s custom tensor processing units alongside third-party graphics processors have helped expand its service delivery.
For readers following Google’s AI push, the quarter also frames its latest model work, including the Gemini 4 Carbon launch aimed at cyber defence. The question now is whether cloud growth can stay ahead of the spending needed to sustain it, or whether investors will demand a clearer path back to positive cash flow.
Why It Matters
Alphabet’s quarter is a test case for the whole AI infrastructure bet: revenue can grow 25 percent and still disappoint when the bill for data centres arrives. If cloud growth holds above 100 percent, the spending looks like investment; if it fades, the same spending starts to look like overbuilding, and every hyperscaler will face the same judgement.
For users, the stakes are more practical. The same quarter that funded data centres also expanded AI features across Search and consumer products, including the Chrome autofill upgrade that pulls details from Gmail. The buildout only pays off if those features keep people inside Google’s products rather than drifting to rivals.
Background
Alphabet has spent heavily all year to meet AI demand, and the third quarter was its first full quarterly update since a major equity raise in June to fund the buildout.
Source: Reuters earnings report, Investor’s Business Daily analysis
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