Alphabet Stock Tumbles After Search Miss and Negative Free Cash Flow

By
Harris
-
23

Key Points

  • Alphabet Class A shares were down 12.14% at $285.46 at 10:19 a.m. ET Thursday, a day after third-quarter revenue and profit missed analyst estimates.
  • Alphabet spent $51.4 billion on property and equipment in the quarter, pushing free cash flow to negative $9.1 billion, and long-term debt rose to $125.1 billion.
  • Google Cloud revenue more than doubled to $30.7 billion, but Search revenue of $63.35 billion missed the $64.96 billion analysts expected, according to CNBC.
  • Microsoft beat estimates with $92.3 billion in revenue and 48% Azure growth, yet its shares gave up an early gain and were down 1.17%.
  • Amazon reports after Thursday’s close, the next test for Big Tech’s AI spending.

Alphabet stock was headed for its biggest post-earnings drop on record Thursday, according to CNBC, after the Google parent paired a rare earnings miss with a deeper cash drain from its artificial intelligence buildout. Microsoft, which reported at the same time on Wednesday, beat forecasts, but its shares could not hold an early rally as the broader tech sector slid.

By mid-morning, Alphabet Class A shares had lost about $40 each. CNBC noted that a close more than 9.77% lower would be the company’s worst post-earnings reaction since it went public in 2004.

What happened

Alphabet said revenue rose 25% to $127.6 billion in the quarter that ended Sept. 30, according to its third-quarter earnings release. Analysts polled by LSEG had expected $128.22 billion, CNBC reported. Adjusted earnings of $2.67 a share, by CNBC’s count, also missed the $3.02 LSEG consensus, which CNBC called the company’s first top-line and bottom-line miss in nearly four years.

Net income available to common stockholders fell to $26.2 billion, or $2.12 a diluted share, from $35.0 billion, or $2.87, a year earlier. A loss of $8.7 billion on equity securities cut earnings by $0.55 a share, Alphabet said. On the earnings call, finance chief Anat Ashkenazi said the hit came primarily from an unrealized loss on Alphabet’s SpaceX investment, according to a transcript published by Investing.com.

Strong cloud, softer search

Google Cloud revenue jumped 103% to $30.7 billion, ahead of the $28.7 billion analysts expected, according to estimates cited by CNBC, and the unit’s operating income more than tripled to $11.1 billion. Search and other revenue grew 12% to $63.35 billion, short of the $64.96 billion estimate. YouTube ad revenue was $11.2 billion.

CNBC reported that Philipp Schindler, Alphabet’s chief business officer, linked part of the search shortfall to lower monetization in AI Mode, Google’s conversational search feature, and said ads are now being scaled inside AI Overviews and AI Mode.

Microsoft’s quarter

Microsoft reported fiscal first-quarter revenue of $92.3 billion, up 19%, in its earnings release. GAAP net income rose 32% to $36.6 billion, or $4.92 a share, and adjusted earnings were $4.89 a share. LSEG consensus had called for $90.69 billion and $4.73, according to CNBC.

Azure revenue grew 48%. CNBC said Microsoft disclosed the business in dollars for the first time, at $33.17 billion. Microsoft Cloud revenue reached $63.9 billion. “Results exceeded expectations across revenue, operating income, and earnings per share,” said Amy Hood, Microsoft’s finance chief.

Why the market moved

The split came down to cash. Alphabet’s capital expenditures more than doubled from a year earlier to $51.4 billion, while operating cash flow fell to $42.3 billion. That left free cash flow at negative $9.1 billion, worse than the negative $5.9 billion in the second quarter and well below the negative $2.7 billion analysts expected, CNBC reported.

To fund the gap, Alphabet raised $28.7 billion in senior notes and $12.4 billion through at-the-market share sales in the quarter, and it bought back no stock. Long-term debt reached $125.1 billion on Sept. 30, up from $46.5 billion at the end of 2025.

Microsoft is still spending heavily, with $45.2 billion in capital expenditures including finance leases, up about 30%, CNBC said. But free cash flow stayed positive at $18.63 billion, down 27%. “Microsoft is building out its architecture in a measured way and as such contains fewer surprises,” Ben Barringer of Quilter Cheviot told CNBC.

Latest development

Data checked: 10:19 a.m. ET, CNBC real-time quotes.

  • Alphabet Class A (GOOGL): $285.46, down $39.44, or 12.14%, after a low of $280.36. Prior close $324.89.
  • Alphabet Class C (GOOG): $283.33, down 11.98%.
  • Microsoft (MSFT): $524.80, down 1.17%, after opening at $540.22 and reaching $541.29. Prior close $531.01.
  • Indexes: Nasdaq Composite down 1.26%, S&P 500 down 0.31%, Dow down 0.24%.

Amazon, which reports after the close, was down 3.30% at the same check. Prices are moving quickly and will change through the session.

Why it matters

Alphabet and Microsoft are among the largest weights in U.S. stock indexes, so their swings feed directly into retirement accounts and index funds. The gap between the two moves suggests investors are separating AI spending that is covered by cash flow from spending that outruns it.

Alphabet chief executive Sundar Pichai pointed to a “half-trillion dollar revenue run rate” and said the Gemini app has reached one billion users. Still, the quarter showed the cost of the race. Ashkenazi kept 2026 capital spending guidance at $195 billion to $205 billion and told analysts, “We continue to expect our capex to increase significantly in 2027,” CNBC reported.

Earlier this earnings season, LiveNewsWorld covered Tesla’s third-quarter report and SpaceX’s quarterly results. SpaceX is the holding Ashkenazi cited as the main source of Alphabet’s investment loss.

What happens next

Amazon reports after the bell Thursday, giving investors the last big hyperscaler read on AI spending for the quarter. For Microsoft, Hood guided fiscal second-quarter revenue to $96 billion to $97.1 billion, with Azure growth of 49% to 50% in constant currency, CNBC reported. She also said some third-party capacity deliveries expected in the first quarter were delayed. Ashkenazi said Alphabet will give more detail on 2027 spending on its fourth-quarter call.

What traders are watching

  • Stabilizing case: if Alphabet holds above Thursday’s early low of $280.36 and Amazon’s results ease spending worries, attention could shift back to Cloud’s 103% growth.
  • Extended slide case: a close more than 9.77% lower would set a post-earnings record, per CNBC, and a weak Amazon report could add pressure on the Nasdaq.

This article is for information only and is not investment advice.

Related live coverage

Follow index moves and the Amazon report on our Markets Live center, and the day’s other top stories at the LiveNewsWorld U.S. News Live center.

Sources