Google shares fall 7% after search growth slows and AI spending rises

In short: Google’s parent company Alphabet reported results that missed expectations, and its share price fell as AI spending climbed past $50bn for the quarter.

What happened

Alphabet, the parent company of Google, reported third-quarter revenue of $127.6bn. That was up 25% from a year earlier, but slightly below what analysts expected.

Profit also came in below expectations. Net income was $26.2bn, compared with analysts’ forecast of $37.3bn. Alphabet said this number was affected by changes in the value of its investments, which can move up and down from quarter to quarter like the price of stocks you might hold in a retirement account.

Investors focused closely on Google Search, the company’s biggest money maker through ads. Search advertising revenue grew 12% to $63.4bn, but it still missed estimates. After the results, Alphabet shares fell more than 7% in after-hours trading.

At the same time, Alphabet increased spending on AI and related infrastructure. Capital expenditure, which is money spent on big long-term items like data centers (warehouses full of computers), rose to $51.3bn for the quarter. The company reported free cash flow of negative $9.1bn, meaning it spent more cash than it brought in during the period.

One bright spot was Google Cloud. Revenue there doubled to $30.7bn, helped by demand for AI services and by renting computing capacity to other companies.

Why it matters

Google’s results show a tension investors are watching across big tech. Companies are spending huge amounts to build AI systems now, while their most reliable businesses, like search ads, are expected to keep growing. If that core growth slows, Wall Street may become less patient with the size and pace of AI spending.

Source: Financial Times