Alphabet, Google’s parent company, reported its third-quarter earnings on Wednesday, falling short of Wall Street expectations despite overall revenue growth. The company’s stock dropped nearly 10% in after-hours trading following the announcement.
Alphabet’s revenue grew 25% year-over-year to $127.58 billion, but this figure was below the $127.97 billion expected by analysts. Net income declined to $26.17 billion from $34.98 billion in the same period last year. Earnings per share (EPS) also missed estimates, with reported EPS of $2.12 compared to the expected $3.01.
The earnings report highlighted declining performance in Google’s core search and advertising businesses, while AI-related investments and cloud services showed growth. Alphabet executives attributed part of the shortfall to foreign exchange impacts, which they noted would worsen in the fourth quarter. The company also reported negative free cash flow of $9 billion for the quarter, triple the estimated deficit.
Google’s search revenue grew 12% to $63 billion, but this was below expectations and marked the second consecutive quarter of underperformance. Despite this, search query growth reached its highest level in five years, suggesting a disconnect between usage and monetization. Analysts have long warned that AI-powered tools, including Google’s own offerings like the Gemini app, could disrupt traditional search models. Google reported that Gemini now has over 1 billion monthly active users, making it the company’s fastest-growing product.
YouTube’s ad revenue also missed expectations, rising 9% to $11.2 billion, down from the $11.43 billion forecast. The platform’s subscription business, however, continued to expand, with over 150 million YouTube Music and Premium subscribers, up from 125 million in March 2025.
In contrast, Google Cloud delivered strong results, with revenue doubling to $30.71 billion and operating income more than tripling to $11.12 billion. The cloud segment’s backlog grew to $561 billion, with $308 billion expected to be realized over the next 24 months.
Alphabet’s CEO, Sundar Pichai, emphasized the company’s focus on AI and its "deep full stack approach," noting that the company is now on a half-trillion-dollar revenue run rate. He also highlighted the rapid adoption of Gemini, which he described as a key driver of future growth.
The earnings miss follows four years without a quarterly top- or bottom-line miss, underscoring the challenges Alphabet faces as it navigates rising AI costs and shifting consumer behavior. The company’s stock decline reflects investor concerns over long-term profitability amid increased spending on AI infrastructure and declining growth in traditional revenue streams like search and advertising.