Alphabet loses $500bn in market value as profit misses forecasts

Alphabet shares fell by double digits in trading from Wednesday evening into Thursday, wiping about $500bn from the market value of the $4tn tech giant, after the Google parent reported lower-than-expected profit and a slowdown in advertising while keeping up heavy spending on AI.

Net profit slid 25% from a year earlier to $26.2bn, or $2.12 a share, for the July-to-September quarter — well short of expectations from analysts surveyed by FactSet. Alphabet booked an $8.7bn loss on its equity investments, which it attributed to its stake in SpaceX, the Elon Musk-led company where shares have struggled since going public in June.

Revenue, however, rose 25% to $127.6bn, slightly below the roughly $128bn analysts had forecast.

Advertising slows as cloud surges

Advertising revenue grew 11% to $82bn, short of expectations. Revenue from Google's search business, still the company's largest source of income, rose 12% to $63.4bn, slowing from 17% growth in the previous quarter. YouTube advertising revenue grew 9% to $11.2bn, down from 13% growth in the prior quarter. YouTube Music and Premium passed 150 million subscribers worldwide, including trials.

Google Cloud, which rents computing power and AI tools to businesses, saw revenue jump 103% to $30.7bn, ahead of analyst expectations. Alphabet said sales of its in-house AI chips, known as TPUs, contributed significantly to that growth, and operating income for the unit tripled to $11.1bn. Google is also selling TPUs to outside companies, in a growing challenge to market leader Nvidia; OpenAI reportedly plans to buy some.

Heavy spending on AI

Alphabet spent $51.4bn on capital expenditures during the quarter, mostly on datacenters and AI chips, more than double the $24bn a year earlier. Its latest forecast is for $195bn to $205bn of capex in 2026, and it said it would increase such spending significantly again in 2027.

"I would broadly think of all of this as a long-range planning process, not a short-term allocation exercise," Google CEO Sundar Pichai told analysts.

Spending, which included a fine paid to the European Union, outstripped the cash generated by Alphabet's businesses for a second straight quarter, leaving a $9.1bn gap. During the quarter, the company raised $28.7bn by selling bonds and $12.4bn by issuing new shares to help pay for its AI ambitions.

Google has stepped up the pace of its AI releases since a delay to a flagship model in July raised questions about whether it was falling behind rivals OpenAI and Anthropic. It launched Gemini 4 at the end of September and later released a version focused on cybersecurity. The Gemini app has reached 1bn users, and Google said its AI models now process nearly 32bn tokens per minute, more than four times the level of a year earlier.

Anthropic, maker of the Claude chatbot and one of Google's largest cloud customers, has committed to using up to one million Google AI chips. Alphabet's "Other Bets" division, which includes the robotaxi company Waymo, posted revenue of $372m and an operating loss of $2bn. Waymo provides more than 500,000 paid rides a week across 15 US metropolitan areas and aims to reach 1m weekly rides by the end of the year.

In September, a US judge declined to order Google to sell off parts of its advertising technology business, imposing restrictions on how it operates instead.

Source: The Guardian.