Alphabet shares plunge as AI spending drives record cash burn, revenue miss
Alphabet shares fell over 10% after missing profit and revenue expectations, with AI spending causing a US$9.07 billion negative free cash flow. Revenue missed analyst estimates at US$127.6 billion. The company announced its new Gemini 4 Carbon model to counter perceptions it had fallen behind in th
Google parent Alphabet on Wednesday missed Wall Street profit and revenue expectations, and artificial-intelligence spending accelerated its cash burn, sending its shares down more than 10 per cent in extended trading.
The tech giant reported negative free cash flow of US$9.07 billion, compared with analyst expectations that it would come close to breaking even, according to data compiled by LSEG. The quarterly cash burn is an increase from US$5.9 billion in the prior quarter, which was the first time the company went into the negative in its 22-year history as a public company.
Capital expenditures, driven by AI, will increase significantly in 2027, said Chief Financial Officer Anat Ashkenazi, adding that this year's capex forecast was unchanged. She said she also expected near-term margin pressure from the use of third-party cloud capacity.
The results reflect the huge costs of the AI buildout, with investors in the sector concerned both by potential overspending and the risk of falling behind rivals by not spending enough. Alphabet's cash burn was driven by spending to boost cloud capacity and fund AI research. It reported a US$7.66 billion operating income loss in "Alphabet-level activities," which it said primarily reflected expenses related to AI research and development.
The tech giant's total revenue for the third quarter was US$127.6 billion, short of analysts' estimate of US$128.2 billion, according to LSEG data. The revenue miss was caused by Google's core advertising business that reported US$82.01 billion in revenue, about US$1.41 billion short of expectations. Net income available to common shareholders fell 25 per cent to US$26.17 billion, and adjusted earnings per share of US$2.67 missed Wall Street targets of US$3.02.
Earlier on Wednesday, Google sought to preempt its results and counter the perception it had fallen behind in the AI race by announcing its new Gemini 4 Carbon model, which CEO Sundar Pichai told analysts during the earnings call meant it was again "leading at the frontier."
Revenue at Google Cloud exceeded estimates and more than doubled to US$30.71 billion in the third quarter ended 30 September, but was not enough to make up for the ad-side performance. Cloud chief Thomas Kurian made his debut on an earnings call, a sign of the enterprise-oriented business unit's increased influence within a traditionally consumer-dominated company. Kurian said sales of Google's tensor processing units, which compete with Nvidia's GPU chips, had become a meaningful contributor to his business unit.