Alphabet Shares Drop About 10% Premarket After Search Revenue Misses and Free Cash Flow Turns Negative in Q3

Alphabet shares fell about 10% in premarket trading on Thursday, October 29, 2026, after the Google parent's third-quarter revenue and earnings came in below Wall Street forecasts and the company reported negative free cash flow as its spending on artificial intelligence infrastructure outpaced the cash generated by its operations, CNBC reported. CNBC noted that a close more than 9.77% lower on Thursday would be the company's worst post-earnings reaction since it went public in 2004.

The quarter in numbers

Consolidated revenue rose 25% to $127.6 billion in the quarter ended September 30, Alphabet's 13th consecutive quarter of double-digit revenue growth, according to the earnings release filed with the Securities and Exchange Commission. Operating income rose to $40.58 billion from $31.23 billion a year earlier, and the operating margin was 31.8%.

Net income available to common stockholders fell to $26.17 billion, or $2.12 per diluted share, from $34.98 billion, or $2.87 per share, a year earlier. Other income and expense swung to a net loss of $8.22 billion from a gain of $12.76 billion in the prior-year quarter. CNBC reported that losses on equity holdings weighed on the results after a $99.03 billion gain in the second quarter fueled by stakes in SpaceX and Anthropic.

Against estimates compiled by LSEG, revenue of $127.58 billion missed the $128.22 billion consensus, and earnings came in at $2.67 a share on an adjusted basis compared with $3.02 expected, CNBC said, calling it the company's first miss on both lines in nearly four years. Operating income also fell short of a FactSet forecast of $43.19 billion.

Search misses while Cloud more than doubles

Revenue from Google Search and other rose 12% to $63.35 billion, below the $64.96 billion analysts expected, according to CNBC. YouTube advertising revenue rose to $11.21 billion from $10.26 billion, and Google Services revenue overall rose 11% to $96.3 billion, the release showed.

Chief business officer Philipp Schindler said the impact on search was partly due to lower monetization within the company's AI Mode, and that Alphabet is now scaling ads within AI Overviews and AI Mode, including in international markets, CNBC reported.

Google Cloud revenue rose 103% to $30.7 billion, compared with $28.7 billion expected by analysts, according to CNBC. Cloud operating income climbed to $11.12 billion from $3.59 billion a year earlier. Alphabet said TPU systems sales were a meaningful contributor to revenue growth.

"Google Cloud revenues grew 103%, powered by huge demand for our AI infrastructure and AI solutions," Chief Executive Sundar Pichai said in the release, adding that the Gemini app has reached one billion users and that the company's first-party model APIs are processing nearly 32 billion tokens per minute.

Spending, cash flow and borrowing

Purchases of property and equipment totaled $51.36 billion in the quarter, compared with $42.29 billion of net cash provided by operating activities, leaving free cash flow at negative $9.07 billion, according to the release's reconciliation table. That compares with negative $5.86 billion in the second quarter. Analysts had expected free cash flow of negative $2.70 billion, CNBC reported, while capital spending came in below the $55.09 billion analysts had forecast.

Alphabet maintained its 2026 capital expenditure forecast of $195 billion to $205 billion. "We continue to expect our capex to increase significantly in 2027, and will provide further details on our Q4 call," Chief Financial Officer Anat Ashkenazi told analysts, according to CNBC.

To help fund the build-out, Alphabet issued senior unsecured notes for net proceeds of $28.7 billion during the quarter and sold 12 million Class A shares and 24 million Class C shares under its at-the-market program for combined net proceeds of $12.4 billion, the release said, with $27.6 billion remaining available under that program. Long-term debt stood at $125.1 billion on September 30, up from $46.5 billion at the end of 2025.

The board declared a quarterly cash dividend of $0.22 per share on Class A, Class B and Class C stock, payable December 14 to holders of record on December 7. Alphabet had 204,757 employees at the end of the quarter.

Read-across to other megacaps

The reaction contrasted with Microsoft, which reported results the same afternoon and was nearly 4% higher in premarket trading, CNBC reported. Microsoft's free cash flow fell 27% to $18.63 billion but stayed positive. Nasdaq-100 futures were down more than 1% early Thursday. In extended trading on Wednesday, CNBC had put Alphabet's decline at about 9%.