Alphabet shares fall after revenue miss, cash burn worsens

Alphabet's shares plummeted over 10% on October 28 after the tech giant missed Wall Street profit and revenue expectations. The company's AI spending had accelerated its cash burn, leading to negative free cash flow of US$9.07 billion for the quarter. CFO Anat Ashkenazi revealed that capital expenditures, driven by AI, would see a significant increase in 2027, though the 2026 capex forecast remained unchanged.

Negative free cash flow was attributed to the costs of the AI buildout, with investors worried about potential overspending and falling behind rivals. Cash burn increased from US$5.9 billion in the prior quarter, marking the first time Alphabet went into the red since its 22-year history as a public company. Operating income loss in "Alphabet-level activities" reached US$7.66 billion, primarily due to AI research and development expenses.

Google's core advertising business generated US$82.01 billion, falling short of the US$128.2 billion estimate. Net income available to common shareholders dropped 25% to US$26.17 billion, and adjusted earnings per share of US$2.67 missed Wall Street's target of US$3.02. CEO Sundar Pichai attempted to offset the results by unveiling the new Gemini 4 Carbon model, claiming it would "lead at the frontier" again.

Despite Google Cloud reporting a revenue of US$30.71 billion, exceeding expectations, it was not sufficient to compensate for the ad-side performance. Cloud chief Thomas Kurian hinted at Google Cloud's growing significance, with tensor processing unit (TPU) sales becoming a notable contributor. The tech giant and its competitors are set to spend well over US$700 billion in 2026 on AI infrastructure.