Capital spending outran the cash coming in
Alphabet reported revenues of $127.577bn for the three months to 30 September, up 25% from a year earlier, in an earnings release filed with the US Securities and Exchange Commission on 28 October. Net income was $26.468bn, diluted earnings per share $2.12, and the operating margin 31.8%.
The figure that moved the stock sits further down the statement. Purchases of property and equipment — Alphabet’s capital expenditure — came to $51.355bn for the quarter. Net cash provided by operating activities was $42.290bn. The gap between the two leaves free cash flow at minus $9.065bn for the three months. Measured over the trailing twelve months, free cash flow was still positive, at $19.747bn.
Shares fell more than 10% after the release, CNBC reported. CNBC also put the quarter below the $128.22bn of revenue analysts had expected, making it Alphabet’s first miss on both revenue and earnings in close to four years.
Cloud doubled while Search slowed
Google Cloud revenue was $30.709bn, up 103% year on year. “Google Cloud revenues grew 103%, powered by huge demand for our AI infrastructure and AI solutions,” chief executive Sundar Pichai said in the release. He also said the company is “now on a half-trillion dollar revenue run rate”.
Google Search and other revenue was $63.350bn, up 12%. That is slower than the 17% the segment grew in the second quarter and the 19% in the first. Google addressed the deceleration on the same day by extending advertising inside AI Mode to ten more countries and launching follow-up-query ads in the United States. YouTube advertising brought in $11.207bn, against $10.261bn a year earlier.
What the two lines mean together
A single quarter of negative free cash flow is not, on its own, a sign of distress at a company with Alphabet’s balance sheet. It is the arithmetic of building data centres faster than the business turns cash. What is new is that it puts a cash figure on something the sector has so far mostly expressed as guidance: Alphabet spent more than $51bn on physical infrastructure in ninety days, and Google Cloud’s 103% growth is the return it points to for that spending.
CNBC reported that full-year 2026 capital expenditure guidance was left unchanged at $195bn to $205bn, and that management expects a significant increase in 2027. Neither figure appears in the earnings release itself.
What to watch
The arithmetic reverses only if operating cash flow grows faster than capital spending, or if capital spending stops rising. Alphabet has signalled the opposite for next year. Its fourth-quarter results, which will show whether the negative quarter was a timing effect or the start of a run, are due in the new year.
