Shares in Google owner Alphabet plummet on profit miss, ad slowdown

WASHINGTON: Shares in Google parent Alphabet fell more than 10 per cent in after-hours trading on Wednesday as the company reported lower-than-expected profit and a slowdown in its advertising business while maintaining heavy spending on AI.

Net profit fell 25 per cent from a year earlier to US$26.2 billion in the July-to-September period, or US$2.12 per share, well short of expectations among analysts surveyed by FactSet.

Alphabet booked an US$8.7 billion loss on its equity investments, which it attributed to its stake in SpaceX, the Elon Musk-led company whose shares have struggled since it went public in June.

Revenue rose 25 per cent to US$127.6 billion, slightly below the roughly US$128 billion analysts had forecast.

Advertising revenue grew 11 per cent to US$82.0 billion, falling short of expectations. Revenue from Google's search business, still the company's largest source of income, rose 12 per cent to US$63.4 billion, slowing from 17 per cent growth in the previous quarter.

YouTube, now the most-watched content provider on American TV screens, saw advertising revenue grow nine per cent to US$11.2 billion, down from 13 per cent growth in the previous quarter. YouTube Music and Premium surpassed 150 million subscribers worldwide, including trial users.

Google Cloud, which rents computing power and AI tools to businesses, saw revenue jump 103 per cent to US$30.7 billion, ahead of analysts' expectations.

The company said sales of its in-house AI chips, known as TPUs, contributed significantly to that growth. Operating income for the unit tripled to US$11.1 billion.

Google is also selling its TPU chips to outside companies, posing a growing challenge to market leader Nvidia. OpenAI plans to buy some of the chips, according to media reports this week.

Alphabet's "Other Bets" division, which includes robotaxi company Waymo, posted revenue of US$372 million and an operating loss of US$2.0 billion.

Waymo now provides more than 500,000 paid rides per week across 15 US metropolitan areas and aims to reach one million weekly rides by the end of the year.

'Long-range planning'

Alphabet spent US$51.4 billion on capital expenditure during the quarter, mostly on data centres and AI chips, more than double the US$24 billion spent a year earlier.

Its latest forecast puts capital expenditure for 2026 at between US$195 billion and US$205 billion.

The company said it would continue to increase capital expenditure significantly in 2027.

"I would broadly think of all of this as a long-range planning process, not a short-term allocation exercise," Google chief executive Sundar Pichai told analysts of the company's investment splurge.

The company's spending, which included a fine paid to the European Union, outstripped the cash generated by Alphabet's businesses for a second consecutive quarter, leaving a US$9.1 billion gap.

During the quarter, Alphabet raised US$28.7 billion by selling bonds and US$12.4 billion by issuing new shares to help fund its AI ambitions.

Google has stepped up the pace of its AI releases since a delay to a flagship model in July raised questions about whether it was falling behind rivals OpenAI and Anthropic.

It launched Gemini 4 at the end of September and later released a version focused on cybersecurity.

The Gemini app has reached one billion users. Google's AI models now process nearly 32 billion tokens, or units of text, per minute, more than four times the level of a year ago, the company said.

Anthropic, the maker of the Claude chatbot, is also one of Google's largest cloud customers. It has committed to using up to one million Google AI chips.

In September, a US judge declined to order Google to sell off parts of its advertising technology business, imposing restrictions on how it operates instead.