Google’s search ads business grew 12% last quarter, to $63.4 billion, and Wall Street still marked it down. Alphabet shares fell about 10% in extended trading Wednesday after search revenue came in below analyst estimates for the second quarter in a row, CNBC reported.
Other lines in Alphabet’s third-quarter earnings release looked far stronger. Revenue rose 25% to $127.6 billion, and Google Cloud more than doubled, up 103% to $30.7 billion. Net income available to common stockholders was $26.2 billion, or $2.12 a share, compared with $35 billion a year earlier, when other income was much larger.
Search growth has been slowing all year, from 19% in the first quarter to 17% in the second and now 12%. Analysts had expected about 15%, The Decoder noted.
What Google told analysts about AI Mode
Philipp Schindler, Alphabet’s chief business officer, listed several causes on the earnings call. He called foreign exchange “the single largest driver” of the slowdown from the second quarter. Some Asia-Pacific retail advertisers were hurt when the EU ended its de minimis exemption, and media and entertainment spending normalized after FIFA World Cup budgets landed in June. He also pointed to Google’s own AI search product: “the strong growth in AI Mode queries had an impact because of the lower monetization we were seeing in AI Mode.”
Search usage is still climbing. CEO Sundar Pichai said in his prepared remarks that year-over-year query growth is the highest it has been in five years, and that AI Mode queries run three times longer than traditional searches on average. Google’s plan is to put more ads inside those answers. Click-through rates on sponsored and organic product listings in AI Mode are already similar, Schindler noted, and Google is now taking AI Mode ads to international markets and adding multi-turn ads in AI Mode in the U.S.
D.A. Davidson analyst Gil Luria wrote that investors will worry the misses in search, YouTube and subscriptions “are an indication that AI has finally come for Google,” though he added that his firm “would not rush to conclusions based on one quarter,” as quoted by CNBC.
Cloud is carrying the spending
Google Cloud’s backlog reached $561 billion, and CFO Anat Ashkenazi told analysts the company expects to recognize just over 55% of it as revenue over the next 24 months. Cloud operating income more than tripled to $11.1 billion. That growth landed the same evening Microsoft put Azure at $33.2 billion for the quarter, and a day after Google said it would put its TPUs inside Oracle’s cloud.
The building is expensive. Purchases of property and equipment hit $51.4 billion in the quarter, and free cash flow was negative $9.1 billion, after negative $5.9 billion in the second quarter. Ashkenazi kept 2026 capital spending guidance at $195 billion to $205 billion. “We continue to expect our CapEx to increase significantly in 2027 and will provide further details on our Q4 call,” she said.