Alphabet shares slump about 13% as search revenue misses forecasts

What happened

Alphabet, the owner of Google, released third-quarter figures after Wednesday's US close. Total revenue climbed 25% to $127.6 billion and search and other revenue rose 12% to $63.35 billion, the company said. Both missed analyst forecasts, and Finimize noted that search fell about $2 billion short. The Financial Times (FT) reported that Google acknowledged its AI Mode feature had hurt classic search, and described Thursday's slide as a roughly $500bn loss in value. By Thursday afternoon the stock was down about 12% to 13%, on course for its worst session since listing in 2004, according to Yahoo Finance and NBC News.

What it means

The most striking detail is a mismatch between usage and money. Alphabet said year-over-year growth in search queries was the fastest in five years, yet revenue from search is slowing. According to CNBC, search growth eased from 19% in the first quarter to 17% in the second and 12% in the third. On the earnings call, executive Philipp Schindler said Google's own AI Mode, which answers questions in a conversational way, was producing fewer ads, NBC News reported, though he added that ad tests inside the feature looked promising. Executives also named currency swings as the biggest drag on search growth and warned that effect would be larger in the fourth quarter, CNBC said.

The second worry is cash. Free cash flow, the money left over after paying for things such as data centers, was negative by about $9 billion, around three times the shortfall analysts had expected, CNBC reported. That followed a negative $5.9 billion in the second quarter, the first time Alphabet had posted a negative figure as a public company. Alphabet kept its 2026 capital spending forecast at $195 billion to $205 billion and said spending will rise significantly in 2027. Its release also shows it raised about $12.4 billion by selling new shares and $28.7 billion through bonds during the quarter.

Profit fell even though the main business grew. Operating income rose 30% to $40.6 billion, but net income dropped to $26.2 billion from $35.0 billion a year earlier, and earnings per share slipped to $2.12 from $2.87. Other income swung from a $12.8 billion gain to an $8.2 billion loss, the release shows, and Yahoo Finance said Alphabet's stakes in AI labs weighed on the result.

Cloud is the clear bright spot. Google Cloud revenue more than doubled to $30.7 billion, and its backlog of signed contracts reached about $560 billion, with a little over half expected to become revenue within 24 months, CNBC said. Microsoft, which reported the same evening, beat analyst expectations, and its Azure cloud revenue grew 48% to $33.2 billion. Alphabet's fall weighed on the whole tech sector on Thursday: the Nasdaq Composite was down about 1.5% during the session, and chip and software stocks also slid, Yahoo Finance reported.

The bull case

Alphabet is still growing fast. Revenue rose 25%, operating income 30%, and Google Cloud more than doubled, with a backlog of about $560 billion pointing to years of contracted demand. Record query growth suggests people still rely heavily on Google, and the company says early ad tests inside AI Mode look promising. Part of the search slowdown came from currency effects rather than lost users, and the Gemini app has passed one billion users.

The bear case

This may be the first clear sign that AI is cutting into the search ads that fund everything else, and Google's own product is part of the cause. Search growth has slowed every quarter this year, free cash flow is deeply negative, and spending is set to climb further in 2027. Alphabet is also paying for the build-out partly with new shares and bonds. If ads in AI answers earn less than classic search ads, profits could stay under pressure.