Alphabet shares fall 11% after hours despite cloud surge

Alphabet Inc.’s shares fell more than 11 per cent in after-hours trading Wednesday after the Google parent reported third-quarter earnings that missed expectations, even as its cloud business more than doubled its revenue.

Fortune reported that the drop wiped out more than $280 billion US in market value. Investing.com put the decline at 10.4 per cent, with shares falling to $288.35 from a $322.22 close. The size of the move varied between outlets depending on when the price was quoted, and after-hours trading can reverse by the next open. Searches for “google stock” were among the most popular in Google Trends Canada on Wednesday, with more than 20,000 searches.

Alphabet reported revenue of $127.6 billion US, up 25 per cent from $102.3 billion a year earlier and roughly in line with the $127.9 billion analysts expected, according to consensus estimates from S&P Global Visible Alpha, as cited by Fortune.

Earnings fell to $2.12 US a share from $2.87 a year earlier, well below the roughly $3.02 analysts had forecast. Fortune reported that an $8.7-billion paper loss on Alphabet’s equity investments trimmed earnings by 55 cents a share. Operating income was $40.6 billion, up 30 per cent from a year ago but slightly below the $40.8 billion of the previous quarter.

Google Cloud revenue rose to $30.7 billion, more than double the year-earlier level. S&P Global’s Melissa Otto said in a note that investors had worried the cloud unit’s profit margin peaked last quarter, but it widened to 36.2 per cent.

Growth elsewhere was softer. Google Search revenue rose 12 per cent to $63.4 billion, a slowdown from 17 per cent growth in the second quarter and 19 per cent in the first, and below the 15 per cent analysts expected. David Wagner of Aptus Capital Advisors wrote that Google Cloud did what it was supposed to do, but “the problem is everything else,” citing investor fears that artificial intelligence could cannibalize the search business.

Spending on that technology is also weighing on cash. Capital expenditures reached $51.4 billion in the quarter, up from $24 billion a year earlier. Free cash flow was negative $9.1 billion, compared with negative $5.9 billion in the second quarter. Alphabet confirmed its forecast of about $200 billion in capital spending this year, and Fortune reported it is expected to rise to $300 billion in 2027. Chief financial officer Anat Ashkenazi said more details on capital spending would come in the fourth quarter.

It was Alphabet’s first full quarterly report since it announced in June that it raised $84.8 billion in equity, including $10 billion from Berkshire Hathaway, to fund its artificial intelligence buildout, Fortune reported.

“We had a strong quarter and are now on a half-trillion dollar revenue run rate,” chief executive Sundar Pichai said in a statement. “Our deep full stack approach is driving momentum across the business, with Alphabet revenues growing 25 per cent year-over-year.”

Analysts were split on the reaction. Dan Ives of Yorkville Ives equity research called the cloud result “the Cloud print we have been waiting for” and said it matters more than the lighter search number. Independent analyst Luke Lango described the paper loss as “accounting noise” and said the sell-off reflects concern over how the spending is being funded.

The figures are Alphabet’s own, as reported by Fortune and Investing.com, and are in U.S. dollars. Trading on Thursday will show how the market settles on the results.

The results arrived the same day as the Federal Reserve held its benchmark rate, as we reported, and the Bank of Canada raised its key rate for the first time since 2023, as we also reported.

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Sources: Fortune, Oct. 28; Investing.com, Oct. 28.