Alphabet Stock Falls 8% to 9% After Hours as Free Cash Flow Turns Negative on $51.4 Billion in Capex

Hours after Google unveiled Gemini 4 Carbon today, Oct. 28, Alphabet released third-quarter results that showed faster growth, a sharp profit drop and a cash-flow hole.

Revenue rose 25% to $127.6 billion, up from $102.3 billion a year earlier. That is the company's 13th straight quarter of double-digit growth. Operating income rose 30% to $40.58 billion, with the margin improving to 31.8% from 30.5%.

Net income went the other way. It fell to $26.17 billion, or $2.12 per share, from roughly $35 billion, or $2.87 per share.

The cash problem

Alphabet spent $51.36 billion on capital expenditures in the quarter, up 114% from a year ago. That was actually below the $55.09 billion analysts polled by LSEG expected.

Free cash flow still landed at negative $9.07 billion. Analysts had expected negative $2.70 billion.

Borrowing is carrying part of the load. Long-term debt reached $125.1 billion, up from $21.6 billion a year earlier. That is an increase of about 479%.

Alphabet kept its 2026 capex guidance at $195 billion to $205 billion, the range it set in the second quarter. Finance chief Anat Ashkenazi told analysts: "We continue to expect our capex to increase significantly in 2027, and will provide further details on our Q4 call."

CNBC reported that annual spending is expected to top $300 billion in 2027. Ashkenazi did not give a figure on the call as quoted.

StockTitan's own calculation is that landing inside the 2026 range requires $63 billion to $73 billion of capex in the fourth quarter alone.

Why profit fell

The drop in earnings per share came from below the operating line. Alphabet booked an $8.66 billion loss on its equity holdings, which the company says cut earnings per share by $0.55. A year earlier the same line added $10.7 billion in gains.

The swing is large against the prior quarter. In the second quarter, Alphabet booked a $99.03 billion windfall from equity holdings, driven by stakes in SpaceX and Anthropic, according to CNBC. Alphabet has not said which holdings drove the third-quarter loss.

Operating income of $40.58 billion missed the $43.19 billion FactSet forecast.

Cloud carries the growth

Google Cloud revenue rose 103% to $30.71 billion, from $15.16 billion a year ago. Analysts had expected $28.7 billion, or about 90% growth.

StockTitan calculates that Cloud accounted for about 62% of the revenue Alphabet added over the past year.

Search grew 12% to $63.35 billion, slowing from 17% in the prior quarter and missing the $64.96 billion estimate. YouTube ads brought in $11.2 billion, up 9%. Subscriptions, platforms and devices contributed $14.29 billion.

Other Bets lost $2.04 billion on $372 million in revenue, compared with a $1.4 billion loss a year ago.

The company's case

Alphabet's argument is that demand justifies the spending. Google Cloud CEO Thomas Kurian told analysts: "We are seeing extraordinary demand and strong growth from both AI labs, capital markets, financial service institutions, and enterprises."

CEO Sundar Pichai said in the earnings release: "We had a strong quarter and are now on a half-trillion dollar revenue run rate." He said the company's year-over-year Search query growth rate is the highest in five years.

The company also said the Gemini app has reached 1 billion users and that its first-party model APIs are processing nearly 32 billion tokens per minute, more than four times a year ago. YouTube Music and Premium passed 150 million subscribers, including trials.

Pichai said demand is strong for the recently launched Gemini 4 Argon model, and that Carbon, announced today, outperforms it "on almost every domain."

The market's reaction

At 4:41 p.m. ET, Class A shares traded after hours at $294.20, 9.4% below the $324.89 close, according to StockTitan's Nasdaq data. XTB put the after-hours drop at 8.25%, and CNBC said shares slumped more than 9%.

Those are after-hours indications, not a regular-session close. Thursday's open will set the first full-session price.

The numbers leave two facts side by side. Cloud profit and revenue are growing at a rate few companies of this size have ever posted. The company is also funding a build-out that already exceeds its cash generation, with debt up more than fivefold in a year. Alphabet has said the 2027 figure will be higher still. The market will get its details on the Q4 call.