Anthony Lee
3 min read
What happened?
Shares of online advertising giant Alphabet (NASDAQ:GOOGL) fell 12.1% in the morning session after the company reported third quarter earnings results, pressured by slowing search advertising growth and surging artificial intelligence capital expenditures.
According to a company press release, revenue rose 25% to $127.58 billion for the third quarter, roughly in line with consensus estimates of $127.9 billion, while diluted earnings per share declined to $2.12 against an expected $3.02 (29.5% miss, partly driven by a loss on equity securities of $8.7 billion vs. a gain of $10.7 billion in the same quarter last year). Capital spending reached $51.36 billion, driving free cash flow to negative $9.07 billion. Google Search revenue grew 12% to $63.35 billion, missing Street forecasts.
On the earnings call, Chief Business Officer Philipp Schindler attributed the search deceleration in part to lower monetization rates in AI Mode queries. Chief Financial Officer Anat Ashkenazi added on the call that capital spending will increase significantly next year from the current $195 billion to $205 billion guidance range.
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What is the market telling us
Alphabet’s shares are not very volatile and have only had 5 moves greater than 5% over the last year. Moves this big are rare for Alphabet and indicate this news significantly impacted the market’s perception of the business.
The biggest move we wrote about over the last year was 6 months ago when the stock gained 9.3% on the news that the company reported first-quarter 2026 financial results that significantly beat market expectations, driven by strong growth in its artificial intelligence (AI) and Cloud businesses.
The tech giant announced that its revenue grew nearly 22% year-over-year to $109.9 billion. More impressively, earnings per share came in at $5.11, an 85% increase from the prior year and smashing analyst forecasts of $2.67. A key driver of the strong performance was Google Cloud, which saw its revenue surge by 63.4% as the company captured more market share from rivals AWS and Azure. Management attributed the broad-based strength to high demand for the company’s generative AI capabilities integrated across its Search, Cloud, and YouTube platforms.
Alphabet is down 9.2% since the beginning of the year, and at $286.27 per share, it is trading 28.9% below its 52-week high of $402.62 from May 2026. Despite the year-to-date decline, investors who bought $1,000 worth of Alphabet’s shares 5 years ago would now be looking at an investment worth $1,934.
