Google loses billions: What’s behind Alphabet’s stock crash?

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Google loses billions

Record revenue fails to save Google

On October 28, Alphabet released its financial results for the third quarter of 2026. Revenue rose 25% year over year to $127.58 billion. However, analysts had expected around $128 billion. Following the earnings release, Alphabet shares plunged more than 10% in after-hours trading, wiping nearly $400 billion off its market capitalization.

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Alphabet's net income fell from $34.98 billion to $26.17 billion, while earnings per share came in at $2.12, compared with expectations of roughly $3. The decline was partly driven by a revaluation of the company's investments, including its stake in SpaceX. Instead of generating investment gains, Alphabet recorded a loss of $8.66 billion.

The advertising business, which remains Google's main source of revenue, also fell short of forecasts. Advertising revenue reached $82.01 billion, compared with expectations of $83.5 billion. Search advertising generated $63.35 billion, while YouTube advertising brought in $11.21 billion. Both figures increased year over year but missed Wall Street's estimates.

A particular concern was the decline in free cash flow — the money a company has left after operating expenses and capital expenditures. In the second quarter, the figure stood at negative $5.86 billion, while in the third quarter the deficit widened to $9.07 billion. During July–September alone, Alphabet spent $51.36 billion on capital expenditures, primarily related to the development of its technical infrastructure.

What is holding back Google's business?

The main reason behind Alphabet's rising expenses is its massive investment in artificial intelligence. The company is building data centers, purchasing equipment, and developing its own Gemini AI models. In 2026, it plans to spend up to $205 billion on these and other capital projects, more than twice as much as a year earlier.

To finance its ambitions, Alphabet is increasingly relying on borrowed funds, while its future commitments to purchase computing capacity and energy already amount to hundreds of billions of dollars.

At the same time, artificial intelligence is beginning to affect Google's advertising business. The company is integrating AI-generated answers directly into its search engine, allowing users to find information without visiting other websites. However, these queries currently generate less advertising revenue than traditional searches. Alphabet Chief Business Officer Philipp Schindler acknowledged that the growing popularity of AI Mode was one of the factors behind slower search revenue growth.

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Competition from OpenAI, Anthropic, and Meta is making matters worse. Their AI services allow users not only to search for information but also to compare products, receive recommendations, and make purchases. If users increasingly turn to these assistants instead of Google, the company risks losing some of the advertisers that have long relied on its search engine as a primary channel for attracting customers.

Cloud business becomes a new pillar for Google

Despite challenges in advertising, Alphabet continues to actively develop other business areas. The most successful of these remains Google Cloud, whose revenue more than doubled in the third quarter. Demand for cloud services is growing as companies seek computing power to develop and deploy artificial intelligence.

Google is also trying to strengthen its position in the consumer AI market. According to Alphabet CEO Sundar Pichai, the Gemini app has reached 1 billion users. Ahead of the earnings release, the company introduced its new Gemini 4 Carbon model, which it claims outperforms the previous version across most benchmarks. Google is also expanding sales of its proprietary AI processors, offering them to other technology companies.

Meanwhile, Google Cloud is entering the cryptocurrency infrastructure market. The company is developing Multi-party Compute, a service that will allow banks and financial institutions to securely manage Bitcoin transactions. The technology enables multiple parties to jointly authorize transactions without storing the complete private key in a single location. The service is still in preview, but it is already attracting interest from major financial institutions, including Morgan Stanley, Citi, and Wells Fargo.

Investors demand returns on AI spending

Alphabet's stock decline shows that investors are becoming increasingly critical of tech giants' spending on artificial intelligence. Rapid revenue growth and the popularity of new products are no longer enough. The market wants to see multibillion-dollar investments translate into profits rather than higher debt and shrinking cash reserves.

At the same time, Google's situation can hardly be described as a crisis. The company maintains a profitable advertising business, continues to expand its cloud services, and has an enormous user base. However, it faces a difficult challenge: learning to generate as much revenue from AI as it does from traditional search while defending its position against competitors. Without that, even technological breakthroughs could be accompanied by further declines in its stock price.

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