Alphabet Q3: Cloud more than doubles but Search and YouTube ads fall short

This quarter contrasts Cloud's robust performance with advertising softness, and the search miss is likely to dominate early reactions. The search segment remains the profit source that finances Alphabet's AI expansion. Capital spending was approximately $4.4 billion below forecasts, following Microsoft's underspend earlier in the same evening, so traders may doubt the near-term pace of hyperscaler orders for AI chips and data-centre gear. The equity securities loss exaggerates the headline EPS decline, so focus will likely shift to underlying operating metrics, where the shortfall is smaller but still exists.

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Earlier report:

• Microsoft's first-quarter results topped expectations, with Azure growth of 48% and capital spending $6 billion below forecasts.

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Google Cloud's revenue doubled and exceeded expectations, but the advertising operations that fund Alphabet's AI ambitions fell short, leaving investors to weigh future growth against current profit.

Key figures:

• EPS declined to $2.12 from $2.87 a year earlier, weighed by an approximately $8.7 billion net loss on equity securities.
• Total revenue of roughly $127.6 billion narrowly missed the expected $127.9 billion.
• Google Cloud revenue surged 103% to about $31 billion, beating forecasts of around $29 billion.
• Search and other revenue of approximately $63 billion and YouTube advertising of close to $11.2 billion both fell short of estimates.
• Operating income of nearly $41 billion missed consensus of about $43 billion.
• Capital expenditure of roughly $51 billion came in below the anticipated $56 billion.
• YouTube Music and Premium surpassed 150 million subscribers, and Alphabet stated that its Gemini 4 models lead at the frontier.

Alphabet's Q3 results were mixed, with Google Cloud's revenue more than doubling and beating expectations, but core advertising underperformed and an investment loss dragged down earnings.

EPS came in at $2.12, down from $2.87 a year earlier, a decline of about 26%. A large component of that drop is due to an approximately $8.7 billion net loss on equity securities, a non-operating item linked to Alphabet's investment portfolio rather than its business performance. Total revenue of about $127.6 billion was just under the roughly $127.9 billion analysts predicted.

Google Cloud was the clear highlight. Revenue rose 103% to around $31 billion, well ahead of the approximately $29 billion forecast, confirming solid demand for AI computing capacity and services that data-centre operators are racing to supply.

The picture was weaker in the segments that still generate most of Alphabet's revenue. Google Services revenue reached about $96 billion, missing the expected $98 billion. Within that, Search and other revenue was approximately $63 billion against estimates of about $65 billion, and YouTube advertising of around $11.2 billion fell short of the $11.4 billion forecast. Search is scrutinised most closely for signs that AI-driven answers are eroding traditional query advertising, so a shortfall of roughly $1.5 billion is likely to revive that debate, even if a single quarter cannot confirm a trend.

Operating income of roughly $41 billion also missed the consensus of about $43 billion. Capital expenditure totalled around $51 billion, below the roughly $56 billion analysts expected.

Alphabet stated that its Gemini 4 Argon and Carbon models now lead at the frontier of AI performance, and that YouTube Music and Premium have passed 150 million subscribers globally, a growing source of non-advertising revenue.

The earnings call will be crucial for guidance on capex, the search outlook, and whether Cloud's growth can continue to offset advertising weakness.