Nasdaq-100 futures dip as Alphabet shares sell off after earnings report: Live updates

Shares of Alphabet, the parent company of Google, experienced a significant drop in after-hours trading on Wednesday due to the company reporting lower-than-anticipated profit and a slowdown in its advertising business, despite continued heavy investment in artificial intelligence (AI). The net profit for the July-to-September period fell by 25% to $26.2 billion, or $2.12 per share, far below the expectations of analysts surveyed by FactSet.

Although revenue surged by 25% to $127.6 billion, slightly under the forecasted $128 billion, advertising revenue grew by 11% to $82.0 billion, missing expectations. Google's search business, the main revenue source, expanded by 12% to $63.4 billion, a deceleration from the 17% growth in the previous quarter. YouTube, the most-watched television content provider in the United States, saw advertising revenue rise by 9% to $11.2 billion, down from the 13% growth in the prior quarter.

YouTube Music and Premium achieved 150 million subscribers globally, including trial users. Google Cloud, which rents computing power and AI tools to businesses, reported a 103% increase in revenue to $30.7 billion, exceeding analysts' predictions. The company attributed the revenue surge to significant investments in its in-house AI chips, known as TPUs, which also contributed to its operating income tripling to $11.1 billion.

Alphabet's 'Other Bets' division, which encompasses robotaxi company Waymo, generated $372 million in revenue and reported an operating loss of $2.0 billion. Waymo currently facilitates over 500,000 paid rides weekly across 15 U.S. metropolitan areas and aims to reach one million weekly rides by year-end. Despite the financial setbacks, Alphabet invested $51.4 billion in capital expenditure during the quarter, primarily in data centers and AI chips, more than double the $24 billion spent the previous year.

The company's 2027 forecast for capital expenditure anticipates spending between $195 billion and $205 billion, underscoring its commitment to long-term planning rather than short-term financial adjustments. CEO Sundar Pichai emphasized that the company's spending, including a fine paid to the European Union, exceeded the cash generated by its business operations for the second consecutive quarter, resulting in a $9.1 billion gap.

To fund its AI ambitions, Alphabet raised $28.7 billion by selling bonds and $12.4 billion by issuing new shares. Google has accelerated its AI developments since a delayed flagship model in July prompted concerns about potential lag behind competitors such as OpenAI and Anthropic. The launch of Gemini 4 at the end of September and the subsequent release of a cybersecurity-focused version showcased the company's AI advancements.

Google's AI models now process approximately 32 billion tokens, or textual units, per minute, a fourfold increase from the previous year. Anthropic, the creator of the Claude chatbot, stands as one of Google's largest cloud customers, committing to the utilization of up to one million Google AI chips. In September, a U.S. judge declined to order Google to divest parts of its advertising technology business, imposing instead restrictions on its operations.