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Google Cloud Grew 103%. Alphabet's Stock Fell 11% Anyway.

Alphabet's Q3 2026 Google Cloud revenue doubled to $30.7B, but $51.4B of capex left free cash flow at -$9.1B and shares fell more than 11% after hours.

Sheida Mohassesy
4 min read
#alphabet#google#big-tech#earnings#stock-market#ai-infrastructure#cloud-computing
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Alphabet said on Wednesday, October 28, that Google Cloud revenue rose 103% in the third quarter to $30.7 billion, and within hours its shares fell more than 11% in after-hours trading, according to Fortune. Alphabet spent $51.4 billion on capital expenditures in the quarter, more than the $42.3 billion its operations brought in, which left free cash flow at negative $9.1 billion. Total revenue was $127.6 billion, up 25%, and roughly in line with the $127.9 billion analysts expected.

The Cloud Number Wall Street Wanted

Google Cloud's operating income reached $11.1 billion, up from $3.6 billion a year earlier, and Fortune puts the unit's margin at 36.2%. Melissa Otto, global head of Visible Alpha Research at S&P Global, told Fortune that investors had worried the cloud margin had already peaked, and it widened.

CEO Sundar Pichai leaned on the same numbers. "Google Cloud revenues grew 103%, powered by huge demand for our AI infrastructure and AI solutions," he said in the release, adding that Alphabet is "now on a half-trillion dollar revenue run rate." Dan Ives of Yorkville Ives called it "the Cloud print we have been waiting for."

Yahoo Finance reported other AI data points from the same day: Pichai said the Gemini app has passed 1 billion users, and Oracle said it will be the first company to buy Google's AI processors for its own data centers.

Two Straight Quarters of Negative Free Cash Flow

Capex of $51.4 billion compares with $24 billion a year earlier, per Fortune. Free cash flow was about negative $5.9 billion in Q2 and negative $9.1 billion in Q3, two negative quarters in a row.

Fortune reports that Alphabet confirmed its forecast of about $200 billion in capex for 2026 and expects roughly $300 billion in 2027. CFO Anat Ashkenazi said more detail on spending will come with fourth-quarter results. Alphabet also raised $84.8 billion in June, including $10 billion from Berkshire Hathaway, to pay for the buildout, according to Fortune.

A week earlier, Meta's free cash flow went negative after $34.9 billion of quarterly capex, and its stock fell nearly 7%. Alphabet's quarterly capex was about $16 billion higher.

Search Slowed, and the EPS Line Looked Ugly

Cloud was the only segment that beat clearly. Google Search and other revenue rose 12% to $63.4 billion, down from 17% growth in Q2 and 19% in Q1, Fortune reports, and analysts had expected about 15%. Yahoo Finance put total advertising revenue at $82.01 billion against an $83.5 billion estimate. YouTube ads brought in $11.2 billion, and Google Services as a whole grew 11% to $96.3 billion, less than half the pace of the company overall.

Pichai pushed back on the idea that AI chat takes queries away from Google. He said AI chat use cases let people "ask more and do more in search," and described agents as "an expansion opportunity," according to Yahoo Finance. Investors weren't convinced on Thursday morning: Yahoo reported the stock down about 10% in premarket trading.

Diluted EPS came in at $2.12, down from $2.87 a year earlier and well below the $3.01 Yahoo Finance cites as the consensus. Most of the gap is an $8.7 billion loss on equity securities, which Alphabet says cut EPS by $0.55. Independent analyst Luke Lango called the paper loss "accounting noise" and argued to Fortune that the stock was being punished for funding the AI buildout with shareholders' money. Operating income, which excludes those investment swings, rose 30% to $40.6 billion, though Fortune notes that was slightly below the $40.8 billion of the second quarter.

David Wagner of Aptus Capital Advisors put the bear case to Fortune this way: "The problem is everything else."

What Investors Are Actually Pricing

Cloud demand is strong and, at a 36% margin, profitable, so the selloff looks more like a worry about timing. Alphabet's core search business is growing more slowly while the company commits to spending roughly $500 billion over two years, and operations alone no longer cover the bill.

The same question hangs over CoreWeave's selloff and every other company building AI capacity ahead of revenue. Alphabet has more room than most: $26.5 billion of quarterly net income and a cloud unit that now earns more than $11 billion a quarter. Its next test is the fourth-quarter call, when Ashkenazi has promised a fuller picture of 2027 spending.

Sources

Frequently asked questions

How much did Google Cloud grow in Q3 2026?

Google Cloud revenue rose 103% year over year to $30.7 billion in the third quarter of 2026, and its operating income reached $11.1 billion, up from $3.6 billion a year earlier, according to Alphabet's earnings release.

Why did Alphabet stock fall after Q3 2026 earnings?

Alphabet shares fell more than 11% after hours on October 28, 2026, according to Fortune. Capital expenditures of $51.4 billion pushed free cash flow to negative $9.1 billion, Google Search growth slowed to 12% against analyst expectations of about 15%, and an $8.7 billion loss on equity investments cut diluted EPS to $2.12.

What was Alphabet's free cash flow in Q3 2026?

Alphabet's free cash flow was negative $9.1 billion in Q3 2026: $42.3 billion of operating cash flow against $51.4 billion of capital expenditures. It was the second negative quarter in a row, after about negative $5.9 billion in Q2.

How much will Alphabet spend on capex in 2026 and 2027?

Fortune reports that Alphabet expects capital expenditures of about $200 billion in 2026, confirming its earlier forecast, rising to about $300 billion in 2027. CFO Anat Ashkenazi said more detail will come with fourth-quarter results.

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