Alphabet posted negative free cash flow of $9.07 billion in the third quarter of 2026, missing analyst expectations by a wide margin, as capital expenditures of $51.36 billion fell short of forecasts and a reversal in equity-holdings revenue weighed on net income.
Alphabet posted negative free cash flow of $9.07 billion in the third quarter of 2026, well below the $2.70 billion shortfall analysts had anticipated, as the company's spending on artificial intelligence infrastructure weighed on its broader financial results.
Revenue for the quarter reached $127.58 billion, up 25% from a year earlier — the fastest growth rate since 2021 — but still fell short of the $128.22 billion Wall Street had forecast, according to analysts polled by LSEG. Adjusted earnings per share came in at $2.67, missing the $3.02 estimate.
Net income dropped to $26.17 billion, or $2.12 per share, compared with $34.98 billion, or $2.87 per share, in the same period a year ago.
Capital expenditures totaled $51.36 billion during the quarter, coming in below the $55.09 billion analysts had projected. During the second quarter, Alphabet had raised its full-year capex guidance to between $195 billion and $205 billion, up from a prior ceiling of $190 billion. Annual capex is expected to exceed $200 billion this year and surpass $300 billion in 2027.
Operating income reached $40.58 billion, missing a $43.19 billion forecast from FactSet.
A category that provided a $99.03 billion windfall in the second quarter — revenue from equity holdings, fueled largely by stakes in SpaceX and Anthropic — reversed course in the third quarter, resulting in a loss of $8.66 billion and adding further pressure to the bottom line.
Alphabet shares fell more than 8% following the report, reflecting investor concern about the pace and cost of the company's AI buildout.
Not all segments disappointed. Google Cloud revenue more than doubled to $30.7 billion, surpassing the $28.7 billion analysts had expected and representing roughly 90% growth. The cloud division houses much of Alphabet's suite of AI products, and the company continued to take market share from larger rivals Amazon Web Services and Microsoft Azure.
Search revenue grew 12% to $63.35 billion, though that also missed a $64.96 billion estimate.
CEO Sundar Pichai told analysts on the earnings call that the company's AI investments powered the highest query growth rate the search business has seen in five years. He also noted that the recently launched Argon Gemini model is already drawing strong demand.
Pichai added that the company's newest model, Carbon — announced Wednesday — outperforms Argon "on almost every domain." The company's Gemini app separately reached 1 billion users, which Pichai described as the fastest product milestone of that kind in Alphabet's history.
The results arrive at a sensitive moment for the AI investment thesis broadly. Alphabet's capital expenditure miss and the depth of its free cash flow decline are likely to intensify scrutiny of whether the returns from AI infrastructure spending are materializing quickly enough to justify the scale of outlays being made across the industry.
With annual capex on course to exceed $300 billion in 2027, how Alphabet balances its cloud momentum against mounting cash burn will be a defining question heading into the next fiscal year.
TechEchelon Staff bylines are produced collectively by the newsroom for short, breaking, and wire-style coverage. Longer-form reporting is published under the responsible reporter's name.
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