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

Alphabet's shares in the parent company, Google, dropped over 10% in after-hours trading on Wednesday following the release of lower-than-expected profit and a slowdown in its advertising business. The company disclosed a 25% decrease in net profit from the previous year to $26.2 billion in the July-to-September period, amounting to $2.12 per share, which fell short of analysts' expectations.

Revenue increased by 25% to $127.6 billion, slightly below the $128 billion forecast by analysts. While advertising revenue grew by 11% to $82.0 billion, it did not meet expectations. The search business, Google's primary income source, saw a 12% revenue rise to $63.4 billion, a slowdown from the 17% growth in the prior quarter.

YouTube's advertising revenue expanded by 9% to $11.2 billion, a decline from the 13% growth in the previous quarter. YouTube Music and Premium surpassed 150 million subscribers globally, including trial users. Google Cloud's revenue surged 103% to $30.7 billion, exceeding analyst predictions, with a significant contribution from the company's AI chips, known as TPUs.

Operating income for this unit tripled to $11.1 billion. Google also saw success in selling its TPU chips to external companies, posing a growing challenge to Nvidia's dominance. OpenAI intends to acquire some of these chips, according to recent reports. Alphabet's "Other Bets" division, which encompasses Waymo, recorded a $372 million revenue and a $2.0 billion operating loss.

Waymo now handles over 500,000 paid rides per week in 15 U.S. metropolitan areas and aims to reach a million weekly rides by the year's end. Alphabet invested $51.4 billion in capital expenditures during the quarter, primarily in data centers and AI chips, more than double the $24 billion spent the previous year. The company anticipates capex spending between $195 billion and $205 billion for 2026, continuing to increase investments significantly in 2027.

The company raised $28.7 billion by selling bonds and $12.4 billion by issuing new shares to finance its AI ambitions. Amidst concerns about falling behind rivals OpenAI and Anthropic due to a delay in a flagship model in July, Google accelerated its AI releases. It launched Gemini 4 at the end of September and released a version focused on cybersecurity.

The Gemini app has attained one billion users. Google's AI models currently process nearly 32 billion tokens, or units of text, per minute, four times the level from a year ago. Anthropic, the creator of the Claude chatbot, is among Google's largest cloud customers, committing to use up to one million Google AI chips. In September, a U.S. judge declined to order Google to sell parts of its advertising technology business, imposing restrictions instead.