Shares in Alphabet, the parent company of Google, dropped more than 10% in after-hours trading on Wednesday after the tech giant reported weaker-than-expected profits and a slowdown in its advertising business. The company's net profit fell 25% from a year earlier to $26.2 billion, or $2.12 per share, missing analyst forecasts compiled by FactSet. Alphabet also recorded an $8.7 billion loss on its equity investments, primarily due to its stake in SpaceX, which has seen its shares struggle since going public in June.
Revenue for the July-to-September period rose 25% to $127.6 billion, slightly below the $128 billion analysts had anticipated. Advertising revenue, a key driver for Alphabet, grew 11% to $82.0 billion, short of expectations. Google's search business, the company's largest income source, saw revenue increase 12% to $63.4 billion, a slowdown from the previous quarter's 17% growth. YouTube, now the most-watched content provider on American TV screens, reported a 9% rise in advertising revenue to $11.2 billion, down from 13% growth in the prior quarter. YouTube Music and Premium surpassed 150 million subscribers worldwide, including trials.
Google Cloud, which provides computing power and AI tools to businesses, saw revenue surge 103% to $30.7 billion, exceeding analyst expectations. The company attributed this growth to sales of its in-house AI chips, known as TPUs, which are also being sold to external companies like OpenAI, challenging market leader Nvidia. Alphabet's 'Other Bets' division, including robotaxi company Waymo, posted revenue of $372 million and an operating loss of $2.0 billion. Waymo now provides over 500,000 paid rides per week across 15 US metropolitan areas and aims to reach one million weekly rides by year-end.
Alphabet's capital expenditures surged to $51.4 billion during the quarter, more than double the $24 billion spent a year earlier, primarily on data centers and AI chips. The company forecasted $195 billion to $205 billion in capex spending for 2026 and plans to increase spending significantly in 2027. 'I would broadly think of all of this as a long-range planning process, not a short-term allocation exercise,' Google CEO Sundar Pichai told analysts regarding the company's investment strategy. Alphabet raised $28.7 billion through bonds and $12.4 billion by issuing new shares to fund its AI ambitions.