Google shares crash 13% as AI spending spooks investors

Google's parent Alphabet's shares plunged more than 13% after quarterly revenue and profit missed Wall Street expectations. Surging AI expenditure and negative free cash flow intensified investor concerns.

In Short

• Alphabet shares fell over 13% after Q3 results missed expectations
• Revenue rose 25% to $127.6 billion but below analyst forecast
• AI spending doubled, with capex hitting $51.4 billion in quarter

Shares of Google parent Alphabet crashed over 13% on Thursday, putting the technology giant on course for its steepest single-day decline, as disappointing quarterly results and surging artificial intelligence spending rattled investors.

Alphabet shares fell after the company reported third-quarter revenue and profit below Wall Street expectations, while its cash outflow widened amid an aggressive push to expand its AI infrastructure. The sell-off also dragged down the broader US stock market, with technology stocks bearing the brunt of investor concerns over the costs of the AI race.

The company reported revenue of $127.6 billion for the July-September quarter, up 25% from a year earlier but below analysts’ expectations of around $128 billion. Net income fell 25% to $26.17 billion from $34.98 billion a year earlier, while earnings per share came in at $2.12.

A key concern for investors was the scale of Alphabet’s spending on AI infrastructure. Capital expenditure surged to $51.4 billion in the quarter, more than double the amount spent in the same period last year, as the company invested in data centres, computing infrastructure and AI chips.

Alphabet has forecast capital expenditure of between $195 billion and $205 billion for 2026 and indicated that spending would increase significantly in 2027. The scale of these investments has intensified questions over how quickly the company can translate rising demand for AI services into sustainable profits and cash flows.

Alphabet’s free cash flow turned negative, with the company reporting an outflow of $9.07 billion in the quarter. The shortfall was substantially larger than analysts had anticipated and highlighted the financial demands of its AI expansion.

The results also exposed weakness in the company’s advertising business. Google advertising revenue rose to $82.01 billion, but fell short of market expectations. Search revenue increased 12% to $63.35 billion, while YouTube advertising revenue climbed to $11.21 billion. Growth in both businesses was slower than in the previous quarter.

Google Cloud, however, delivered a strong performance. Revenue more than doubled to $30.71 billion, driven by demand for AI infrastructure and enterprise cloud services. Operating income at the division also increased sharply, underlining the commercial opportunities Alphabet sees in AI.

The cloud performance was not enough to offset investor concerns over the company’s spending plans and weaker-than-expected overall results.

Alphabet has been investing heavily to compete with rivals including Microsoft and Amazon in the race to build AI infrastructure and develop advanced models. While the investments are intended to strengthen its position in a rapidly expanding market, investors are increasingly scrutinising the returns expected from the spending.

The broader technology sector has also faced growing questions about whether the revenues generated by AI products will justify the enormous cost of building and operating the infrastructure required to run them.

Alphabet’s latest results have brought that concern into sharper focus, with investors weighing the promise of its expanding cloud business against the immediate pressure on cash flow and the prospect of still higher capital expenditure.

- Ends