Alphabet, Google’s parent company, has experienced a significant drop in market value, shedding approximately $500 billion, after its third-quarter profits in 2026 fell short of expectations. The company’s net profit for the July-September period was reported at $26.2 billion, marking a 25% decline compared to the same timeframe last year. Earnings per share reached $2.12, failing to meet market forecasts, despite a 25% increase in revenue year-on-year to $127.6 billion, which was still slightly below projections.
Investors expressed concerns about slowing growth in Alphabet’s advertising segment, which remains a primary revenue source. Advertising revenue rose by 11% to $82 billion, while Google Search revenue increased by 12% to $63.4 billion. YouTube’s advertising revenue grew by 9% to $11.2 billion, a decrease from the previous quarter’s growth rate.
Contrarily, Google Cloud demonstrated robust performance, with revenue soaring by 103% to $30.7 billion. This growth was driven by heightened demand for cloud computing services, AI infrastructure, and Google’s in-house Tensor Processing Units (TPUs). The division’s operating income tripled to $11.1 billion, underscoring the escalating importance of cloud services to Alphabet’s overall business strategy.
In its AI initiatives, Alphabet is ramping up its AI chip business to cater to the increasing demand from enterprises deploying advanced AI systems. The company’s TPUs are being positioned as alternatives to Nvidia’s chips, which could become a substantial revenue stream. However, this expansion incurs significant costs, with Alphabet spending $51.4 billion on capital expenditures during the third quarter, more than double from the prior year. The majority of these investments focused on data centers, AI chips, and related infrastructure.
The company anticipates capital expenditures to rise to between $195 billion and $205 billion in 2026, with further increases expected in 2027. These investments are part of Google’s strategy to fortify its position in the competitive AI market against rivals like OpenAI and Anthropic.
Alphabet’s AI advancements are gaining momentum, with the Gemini application reaching one billion users and its AI models processing significantly more data than the previous year. Despite these developments, Alphabet’s investment portfolio took an $8.7 billion hit on equity investments, compounding the pressure on quarterly profits.
The recent financial results highlight the challenges Alphabet faces in balancing its traditional advertising business with the growing costs of AI investments. While strong cloud revenue and increasing AI adoption present opportunities for future growth, the deceleration in advertising momentum and rising infrastructure expenses have raised questions about the pace at which these investments will yield sustainable returns.