Alphabet revenue misses estimates as Google Cloud growth accelerates

Alphabet reported third-quarter revenue of $127.577 billion, up 25% from a year earlier but below LSEG’s $128.2 billion consensus estimate. Rapid Google Cloud growth was not enough to offset an advertising shortfall.

Google Cloud revenue rose 103% to $30.709 billion. The unit’s operating income increased to $11.121 billion from $3.594 billion.

In its earnings release filed with the SEC, Alphabet attributed the cloud expansion to Google Cloud Platform demand across enterprise AI infrastructure, enterprise AI solutions and core services. The company said sales of its tensor processing unit systems, specialized chips used for AI workloads, also made a meaningful contribution. It did not quantify that contribution or disclose how much cloud revenue came from AI products.

Google Services revenue increased 11% to $96.302 billion, including $82.012 billion in Google advertising revenue. The advertising total was about $1.41 billion below expectations in LSEG data. That shortfall accounted for the company-wide revenue miss even as cloud revenue exceeded analysts’ estimates.

Infrastructure spending, meanwhile, outpaced cash from operations. Alphabet generated $42.290 billion in operating cash flow and spent $51.355 billion on property and equipment, resulting in negative $9.065 billion of company-defined free cash flow. That compared with negative $5.855 billion in the prior quarter; analysts tracked by LSEG had expected the figure to be close to break-even.

Alphabet said its first-party model APIs were processing nearly 32 billion tokens per minute, more than four times the year-earlier rate. The company also said the Gemini app had reached one billion users. CEO Sundar Pichai attributed the cloud revenue increase to demand for AI infrastructure and AI solutions.

Company-wide operating income rose 30% to $40.576 billion, with an operating margin of 31.8%. Net income available to common stockholders fell to $26.170 billion from $34.979 billion, and diluted earnings per share declined to $2.12 from $2.87. Alphabet recorded an $8.664 billion net loss on equity securities, which it said reduced net income by $6.7 billion and diluted earnings per share by $0.55.

Alphabet-level activities posted a $7.655 billion operating loss, compared with $4.467 billion a year earlier. The company said those activities primarily reflected shared AI research and development expenses. The results cover the quarter ended September 30 and were furnished on Form 8-K on October 28.