Alphabet Stock Plunges Over 10% as Search Ad Growth Slows

Alphabet (NASDAQ: GOOGL) shares fell more than 10% to $291.49 in pre-market trading Thursday after the Google parent reported weaker-than-expected third-quarter earnings, as slowing search advertising growth and heavy artificial intelligence spending overshadowed strong demand for its cloud services.

Alphabet reported diluted earnings of $2.12 per share for the quarter ended September 30, down from $2.87 a year earlier. An $8.7 billion loss on equity securities reduced earnings by $0.55 per share. Excluding that loss, earnings per share were $2.67, below the analyst consensus estimate of $3.02.

Revenue rose 25% year over year to $127.6 billion, below the $127.97 billion analyst consensus estimate compiled by FactSet.

Search Advertising Slows Despite Faster Query Growth 

Google Search and other advertising revenue rose 12% to $63.35 billion, compared with 17% growth in the second quarter and 19% in the first quarter. The latest increase marked the unit’s slowest growth in five quarters.

The slowdown contrasted with stronger search activity. Alphabet CEO Sundar Pichai said Google Search recorded its fastest year-over-year query growth in five years, supported by increasing use of AI-powered search features.

During Wednesday’s earnings call, Chief Business Officer Philipp Schindler said foreign-exchange effects were the largest contributor to the slowdown from the previous quarter. He also cited pressure among some Asia-Pacific retail advertisers affected by the EU’s removal of an exemption for low-value imports, along with media and entertainment ad spending returning to typical levels after unusually strong FIFA World Cup-related spending in the second quarter. He separately identified lower monetization of AI Mode queries as a factor.

Schindler said Google was expanding ads in AI Mode into international markets and introducing additional ad formats in the United States to increase revenue from AI-powered searches.

Cloud Revenue Surges as AI Spending Pressures Cash Flow

Google Cloud, meanwhile, reported revenue of $30.71 billion, up 103% year over year, supported by demand for AI infrastructure and enterprise services as well as sales of TPU systems built around Google’s custom AI chips. Its order backlog reached $561 billion, and Alphabet expects to recognize slightly more than 55% of the backlog as revenue over the next 24 months.

Alphabet reported quarterly capital expenditures of $51.4 billion and negative free cash flow of approximately $9.1 billion, marking its second consecutive quarter of negative free cash flow. The company’s cash flow also reflected a $5.2 billion payment related to a 2018 European Commission fine and inventory purchases to support TPU system sales.

Chief Financial Officer Anat Ashkenazi maintained the company’s 2026 capital spending forecast of $195 billion to $205 billion and said expenditures were expected to increase significantly in 2027.

Alphabet Shares Retreat as Wall Street Cuts Price Targets

Alphabet shares closed Wednesday’s regular session at $324.89, up 1.34% ahead of the earnings release. Thursday’s indicated premarket price placed the stock approximately 28.7% below its 52-week high of $408.61.

Separately, Alphabet Tokenized bStocks (GOOGLB) traded at $290.88, down 11% over the past 24 hours, according to CoinMarketCap. The tokenized instrument trades separately from Alphabet’s Nasdaq-listed shares. 

Several Wall Street firms reduced their price targets following the earnings report, while Citizens downgraded Alphabet from Market Outperform to Market Perform. Citizens cited a roughly five-percentage-point slowdown in search revenue growth from the second quarter to the third quarter, as well as difficulties monetizing AI-powered search.

Morgan Stanley lowered its target to $375 from $400 while maintaining an Overweight rating. Bernstein SocGen Group reduced its target to $325 from $385 and retained Market Perform. 

Barclays lowered its price target to $405 from $425 and maintained its Overweight rating, while KeyBanc reduced its price target to $385 from $410 and kept its Overweight rating unchanged.