Alphabet (Nasdaq: GOOGL), the parent company of Google and YouTube, reported its third-quarter 2026 results after the US market closed on Wednesday, October 28. Sales grew strongly and its cloud business more than doubled, but profit fell and the company is spending record amounts on AI. Its shares dropped about 10% in after-hours trading and were still around 10% lower before Thursday’s open.
The quarter in numbers
For the three months to September 30, 2026, compared with the same quarter of 2025:
- Total revenue: $127.6 billion, up 25%, slightly below what analysts expected.
- Google Cloud revenue: $30.7 billion, up 103%. Cloud operating profit rose to $11.1 billion, from $3.6 billion.
- Google Search revenue: $63.4 billion, up 12%, a slowdown from earlier this year.
- YouTube ads revenue: $11.2 billion, up 9%.
- Operating income: $40.6 billion, up 30%.
- Net income: $26.5 billion, down from $35.0 billion.
- Earnings per share (diluted): $2.12, down from $2.87 and well below forecasts of about $3.
Why profit fell
The main business made more money, but Alphabet also owns stakes in other companies, and their value fell. It booked a loss of $8.7 billion on these investments, against a gain of $10.7 billion a year ago. That swing pulled net profit down.
Record spending on AI
- Capital spending (mostly data centers, chips and servers for AI): $51.4 billion in the quarter, more than double the $24.0 billion of a year earlier.
- Free cash flow (cash left after this spending): minus $9.1 billion, the second quarter in a row below zero.
- The company kept its plan to spend around $200 billion this year and said spending will rise significantly in 2027.
- Alphabet did not buy back any of its own shares this quarter. Instead it sold about $12.4 billion of new shares to raise money. It kept its dividend at $0.22 per share.
CEO Sundar Pichai said the company is now on a “half-trillion dollar” yearly revenue pace and that the Gemini app has reached one billion users.
Why it matters
Alphabet is one of the largest companies in the world and a big part of the S&P 500 and Nasdaq indexes, so a 10% drop moves the whole market and many pension and index funds. The results show the main worry in today’s markets: AI is bringing in fast-growing sales, but the cost of building it is now larger than the cash the business produces. Big swings in tech stocks also tend to affect crypto, which often trades together with them.
This article is for information only and is not financial advice.
