Alphabet is preparing to release its third-quarter earnings after the market closes on Wednesday. Analysts expect the company to report earnings per share of $3.02 and revenue of $128.2 billion, representing a 25% year-over-year increase, the fastest growth rate since 2021. Despite this optimism, investors remain cautious due to the rising costs associated with Alphabet's artificial intelligence expansion. Shares of the Google parent have declined in five of the past six sessions and are down about 7% in October.
The company's capital expenditures (capex) are projected to grow by 130% year-over-year to $55.2 billion, with annual capex expected to surpass $200 billion this year and reach $300 billion in 2027. Analysts also anticipate negative free cash flow of $2.27 billion for the quarter, with the deficit widening in the coming quarters. This financial strain comes as Alphabet invests heavily in its cloud division, which is expected to grow by 90% to $28.7 billion, driven by AI offerings and market share gains against Amazon Web Services and Microsoft Azure.
Google is aggressively integrating its Gemini models and custom tensor processing units (TPUs) into its enterprise offerings, competing with Nvidia's graphics processing units (GPUs). However, the company's core search business faces increasing competition from OpenAI, Anthropic, and other emerging agents. Analysts at Citizens, who recommend buying the stock, caution that while Google remains well-positioned in AI, execution risks and intensifying competition in search require careful management.
Alphabet executives will discuss the earnings results during a conference call with analysts at 4:30 p.m. ET. Microsoft and Amazon are also set to report earnings on Wednesday and Thursday, respectively.