Alphabet’s Google Cloud division reported a significant revenue surge, more than doubling to $30.7 billion in the third quarter. This growth helped offset slower gains in Google Search and YouTube, contributing to Alphabet’s overall revenue of $127.6 billion, a 25% increase from the previous year. Despite meeting analysts’ expectations, earnings per share dropped to $2.12 from $2.87, largely due to an $8.7 billion loss on equity investments.
In after-hours trading on Wednesday, Alphabet’s stock fell as much as 8%. CEO Sundar Pichai highlighted that Google Cloud’s revenue grew by 48%, reaching an annual run rate of over $70 billion. He also noted that Alphabet’s annual revenues exceeded $400 billion for the first time.
Capital expenditures surged to $51.4 billion in the third quarter, up from $24 billion a year earlier, reflecting the intense competition for AI compute resources. The company’s free cash flow turned negative, hitting negative $9.1 billion, compared to negative $5.9 billion in the previous quarter. This shift follows Alphabet’s $84.8 billion equity raise in June, aimed at funding its AI expansion.
Analysts had previously expressed concerns about Google Cloud’s profit margins, but the division’s margin widened to 36.2% in the latest quarter, according to Melissa Otto of S&P Global Visible Alpha Research.