Alphabet drops over 9% after hours on search miss, $9bn cash burn
Alphabet shares fell more than 9% in after-hours trading as a shortfall in search advertising and negative free cash flow of around $9 billion outweighed Google Cloud revenue more than doubling.
The Google parent reported quarterly revenue of around $127.6 billion, short of the roughly $128.2 billion analysts had expected, with advertising revenue of about $82 billion missing forecasts near $83.4 billion. Adjusted earnings per share of $2.67 fell below the $3.02 consensus, and net income attributable to shareholders dropped 25% to around $26 billion.
Free cash flow was negative by roughly $9 billion, against expectations that the figure would be close to flat, according to LSEG data. It marked a second consecutive quarter of cash burn, following a shortfall of about $6 billion in the prior quarter — the first time in Alphabet’s 22 years as a public company that free cash flow had gone negative.
Chief Business Officer Philipp Schindler attributed the slowdown in search advertising to wider adoption of AI Mode, Google’s conversational search feature where advertising is still being tested. He said the company would extend AI Mode ads to international markets. The result is being read as early confirmation of a risk long flagged by investors: that AI-generated answers could cut into Google’s traditional search revenue.
Chief Financial Officer Anat Ashkenazi said capital expenditure would climb significantly in 2027, beyond this year’s guided range of $195 billion to $205 billion, without giving a specific figure. She also pointed to near-term margin pressure from reliance on third-party cloud capacity and said building inventory of Google’s tensor processing units would further strain free cash flow.
Cloud remained the standout segment, with revenue more than doubling to around $30.7 billion and a backlog of roughly $560 billion, over 55% of which is expected to convert to revenue within 24 months. Cloud CEO Thomas Kurian, on his first earnings call in the role, said TPU chip sales had become a meaningful revenue driver.
The reaction contrasted with Microsoft, whose shares rose more than 5% after the bell on the back of free cash flow that beat estimates, highlighting a divide in how markets are treating AI spending that generates near-term cash versus spending that consumes it.
For markets Praevis tracks, the move affects US megacap tech sentiment broadly, with the Nasdaq 100 and S&P 500 exposed through Alphabet’s weighting, while heavier AI capital spending plans also feed through to demand expectations for chipmakers and data centre suppliers.
Source: investingLive