Alphabet, Google’s parent company, witnessed a substantial decline in market value, losing approximately $500 billion, following the announcement of lower-than-expected profits for the third quarter of 2026. The sharp drop in share price reflects investor concerns over slowing advertising growth and increasing expenses related to artificial intelligence (AI).
Despite reporting a net profit of $26.2 billion, Alphabet saw a 25% decrease compared to the previous year. Earnings per share were $2.12, falling short of market forecasts. Though revenue grew by 25% year-on-year to $127.6 billion, it still underperformed relative to predictions.
Advertising remains a crucial revenue stream for Alphabet, yet growth has been sluggish. Advertising revenue rose by 11% to $82 billion, with Google Search contributing $63.4 billion, a 12% increase. YouTube’s advertising revenue saw a 9% rise to $11.2 billion, marking a slowdown from earlier growth rates.
Conversely, Google Cloud displayed robust performance with revenues surging by 103% to $30.7 billion, driven by heightened demand for cloud services and AI infrastructure. The division’s operating income tripled to $11.1 billion, underscoring cloud services’ increasing significance to Alphabet’s business model.
Alphabet is aggressively expanding its AI chip business, focusing on its Tensor Processing Units (TPUs) as alternatives to Nvidia’s offerings. However, this growth entails significant investment. Capital expenditures more than doubled from the previous year to $51.4 billion, primarily for data centers and AI infrastructure. The company projects capital expenditure to reach $195 billion to $205 billion in 2026, with further increases anticipated in 2027.
These strategic investments aim to bolster Alphabet’s standing in the competitive AI sector, where it faces pressure from rivals like OpenAI and Anthropic. The Gemini application, a part of Alphabet’s AI initiatives, has reached one billion users, and Google’s AI models are processing more data than before, reflecting the company’s expanding AI capabilities.
Adding to the financial strain, Alphabet’s investment portfolio incurred an $8.7 billion loss on equity investments, further impacting quarterly profitability. The results highlight Alphabet’s challenge in balancing its traditional advertising business with costly AI investments, raising questions about the timeline for these investments to yield sustainable returns.