Markets
Alphabet Fell 9% After Hours on a $9 Billion Cash Burn
Alphabet's shares fell about 9% after hours on Wednesday as $51.4 billion of capital spending left free cash flow at minus $9.1 billion. Google Cloud revenue doubled, but Search growth slowed to 12% and earnings per share fell well short of forecasts.
Alphabet's cloud business has rarely looked better, and the market still marked the shares down. The company reported on Wednesday, October 28, that revenue rose 25% to $127.58 billion and that Google Cloud revenue more than doubled, up 103% to $30.71 billion with an operating margin of 36.2%, its third straight quarter of faster growth after 63% in the first quarter and 82% in the second. The Class A shares, which had closed at $324.89, traded at $294.20 at 4:41 p.m. in New York, 9.4% lower, and later reports put the after-hours fall at up to 11%.
The problem was cash. Capital spending reached $51.36 billion, more than double the $23.95 billion of a year earlier, bringing the first nine months to $132.0 billion, and free cash flow was minus $9.07 billion after minus $5.86 billion in the second quarter. A year ago Alphabet generated $24.46 billion of free cash flow in a single quarter. Analysts had expected the company to come close to breaking even, according to InvestingLive, and the chief financial officer said 2027 capital spending will rise significantly, without giving a figure; the 2026 range of $195 billion to $205 billion was not changed.
The core business slowed at the same time. Revenue from Google Search and other rose 12%, after 17% in the second quarter and 19% in the first, and YouTube advertising 9%, against 13% a quarter earlier. InvestingLive put total advertising revenue at about $82 billion against roughly $83.4 billion expected and reported that Google linked slower search ad growth to greater use of AI Mode. Diluted earnings fell 26% to $2.12 a share, far below forecasts near $3, after an $8.66 billion loss on equity securities that compared with a $10.73 billion gain a year earlier. Interest expense rose to $967 million from $143 million.
The same evening showed what investors now ask of the companies building AI capacity. Microsoft spent $45.2 billion in its quarter and rose after hours because it still produced $18.6 billion of free cash flow; Alphabet, spending slightly more, fell because it produced none. S&P Global's Melissa Otto said Google's core business fell short while Microsoft showed discipline in managing its spending, Crypto Briefing reported. Spending is acceptable while the rest of the business pays for it; it stops being acceptable when it has to be funded.
The selling crossed the Pacific overnight: on Thursday morning Korea's Kospi was down about 3% as Samsung Electronics fell despite a record profit, and analysts cited Alphabet's report among the reasons. Amazon reports on Thursday evening, the last of the large cloud providers this week, and its free cash flow will now be read as closely as AWS growth.