Alphabet's shares dropped over 10% after the company reported third-quarter results that disappointed investors, highlighting concerns about its heavy investment in artificial intelligence. The tech giant posted negative free cash flow of $9.07 billion, well below analyst expectations, with earnings per share of $2.67 versus the predicted $3.02 and revenue of $127.58 billion compared to the anticipated $128.22 billion. This marked Alphabet’s first earnings and revenue miss in nearly four years, with net income falling considerably from the previous year to $26.17 billion.

Despite these results, Alphabet kept its full-year capital expenditure (capex) forecast unchanged at between $195 billion and $205 billion, a range it raised in the second quarter. The company anticipates a significant jump in capex in 2027, potentially exceeding $300 billion, reflecting its aggressive push to build out AI capabilities. CFO Anat Ashkenazi indicated that further details on this investment plan would be provided during the fourth-quarter earnings call. Meanwhile, Alphabet’s long-term debt surged dramatically by 479% year-over-year to $125.1 billion, revealing increasing financial leverage as it funds its expansion.

The company’s cloud division delivered strong results, more than doubling revenue to $30.7 billion and surpassing forecasts, driven by high demand from AI labs, financial services, and enterprises. Google Cloud CEO Thomas Kurian highlighted robust growth and market share gains against competitors like Amazon Web Services and Microsoft Azure. Nevertheless, the cloud segment’s outperformance was not enough to offset misses in other sectors, including search, where revenue grew 12% but fell short of expectations. CEO Sundar Pichai noted that AI-powered search query growth hit its highest level in five years.

Alphabet’s AI push also showed consumer traction, with the Gemini app reaching 1 billion users—the fastest growth it has ever seen. The newly introduced Argon Gemini and Carbon AI models are already seeing strong demand. Still, the mixed earnings and disappointing cash flow raised investor concerns about whether the massive capital spending will yield sufficient returns. Overall, while Alphabet’s cloud and AI momentum remain promising, the near-term financial pressures underscore the challenges of sustaining growth amid a costly technology transition.