Alphabet burns $9.1 billion in cash as AI costs outpace ad revenue

Alphabet reported a negative free cash flow of $9.1 billion for the third quarter, a sharp decline from analyst expectations of near break even performance. The tech giant’s stock fell 10 percent in after hours trading following the announcement.

The cash drain marks the first time the company has posted negative cash flow in 22 years as a public company. This shift comes as Alphabet pours resources into artificial intelligence infrastructure, causing a massive acceleration in spending.

Total revenue for the quarter came in at $127.6 billion, falling short of the $128.2 billion projected by analysts at LSEG. Advertising revenue, a core part of the business, totaled $82 billion. This figure missed the expected $83.4 billion, representing a gap of $1.4 billion.

Philipp Schindler, the company’s chief business officer, attributed the slowdown in search advertising to the increased use of AI Mode. This is a chatbot interface for the search engine where the company is currently testing advertisements. Schindler stated that Google will begin rolling out these ads to international markets.

Net income available to common shareholders dropped 25 percent to $26.17 billion. Adjusted earnings per share stood at $2.67, missing the Wall Street target of $3.02.

Cloud business performance provided a counterweight to the advertising miss. Google Cloud revenue more than doubled to $30.71 billion, exceeding analyst estimates. Thomas Kurian, the CEO of Google Cloud, joined the earnings call to discuss the unit’s growth.

Kurian noted that sales of Google’s tensor processing units, or TPUs, have become a meaningful contributor to the business. These chips compete with Nvidia’s graphics processing units. Alphabet began recognizing revenue from direct sales of TPU systems last quarter, which include associated hardware and software.

Dave Wagner, a portfolio manager at Aptus Capital Advisors, observed that investors are worried about AI cannibalizing the search franchise. He stated that until search shows AI is additive to revenue, the stock is likely to trade lower.

Anat Ashkenazi, Alphabet’s chief financial officer, told analysts on a conference call that the company plans to increase capital expenditures for 2027. This year’s spending forecast sits between $195 billion and $205 billion. Executives did not provide a specific number for next year’s outlays, but investors expressed nervousness about a potential jump to $300 billion.

Jeremy Saltsburg, a senior investment officer at Check Capital, warned that such a large capex figure could scare the market given the current negative free cash flow. Ashkenazi also cautioned that using third-party cloud capacity would create near term margin pressure.

Google Cloud’s backlog has grown to $561 billion. The company expects to recognize more than 55 percent of that backlog as revenue within the next 24 months. The unit has secured multi year deals across cybersecurity, retail, and financial services sectors.

The AI buildout remains expensive across the industry. Alphabet, Microsoft, Amazon, and Meta are projected to spend more than $700 billion collectively in 2026 to expand AI data centers, chips, and networking capacity. Supply bottlenecks for advanced silicon and power continue to shape these investments. Earlier on Wednesday, Google unveiled the new Gemini 4 Carbon model. CEO Sundar Pichai said the company remains at the frontier of AI development. Analysts at Bernstein questioned whether Google rushed the model deployment to offset softer financial metrics and if the models are ready for commercial use.