Alphabet reports 25% fall in quarterly net profit

Alphabet, Google’s owner, reported a 25% year-on-year fall in quarterly net profit in its 28 October results. Alphabet also disclosed an investment loss tied to its SpaceX stake and maintained its full-year capital-spending forecast.

The results cover the third quarter ended on 30 September. Search remained Google’s largest source of income, while its cloud business more than doubled revenue.

An investment loss alongside infrastructure spending

Alphabet booked an $8.7 billion loss on equity investments, which it attributed to its SpaceX stake, The Guardian said in its 28 October account. This was an investment loss included in the results, not a reported loss from operating the business.

Separately, Alphabet spent $51.4 billion on capital expenditures—long-term assets such as computing equipment and data centres—during the quarter, more than double the $24 billion spent a year earlier. About two-thirds went to servers and networking equipment; the rest funded data-centre construction.

Alphabet maintained its forecast of $195 billion to $205 billion in capital spending for 2026. That is a full-year forecast, not an amount already spent. The company said it would continue heavy investment in superintelligence (SI), including chips and data centres, the facilities that house computing equipment.

Quarterly results and differing revenue figures

Stronger-than-expected cloud revenue did not offset an advertising shortfall. The Register’s 29 October account gives conflicting total and cloud revenue figures. The Guardian agrees with CNA Business on total revenue and gives a rounded cloud figure; it also gives a slightly different search-revenue figure from The Register.

Free cash flow measures cash generated by operations after capital spending. Alphabet had already recorded a $5.9 billion shortfall in the second quarter, its first negative free cash flow in 22 years as a public company. The third quarter therefore marked a second consecutive shortfall.

Alphabet shares fell more than 10% in after-hours trading on 28 October, rather than in a closing-session result.

Schindler links slower growth to lower chatbot-search earnings

Chief business officer Philipp Schindler attributed the larger-than-expected slowdown in search-advertising growth to greater use of Google’s chatbot search interface. Those searches generated less advertising revenue than conventional searches. Google was still experimenting with advertising in the interface.

Schindler said most queries in the chatbot mode were additional searches, creating opportunities to earn more over time. Many came from people at an early stage of considering a purchase. Those were management’s expectations for future advertising opportunities, not evidence that the revenue gap had closed.

Schindler had outlined an international advertising rollout. In its 29 October account, The Register said Google had begun showing advertisements alongside chatbot-mode searches worldwide after testing them only in the US.

Cloud capacity constraints and the spending ahead

The Register said Google Cloud lacked enough computing capacity to serve all its customers and had begun moving some customer workloads to third parties. Chief financial officer Anat Ashkenazi said using third-party cloud capacity would put near-term pressure on profit margins.

Google Cloud CEO Thomas Kurian said more than 100 companies used its TPUs, Google’s in-house SI chips, and that all inventory for those chip systems was associated with committed contracts. Google expected to record revenue from TPU sales to outside companies in coming quarters. Ashkenazi cautioned that building chip inventory would put further pressure on free cash flow.

Ashkenazi said Alphabet planned to increase capital spending significantly in 2027 from its 2026 forecast. Google Cloud’s backlog—contracted business not yet recorded as revenue—had grown to $561 billion. Alphabet expected to recognise more than 55% of that backlog as revenue over the following 24 months.