Key Takeaways
- Alphabet fell 9.6% after third-quarter EPS of $2.12 missed the $3.01 consensus and free cash flow hit negative $9.07 billion.
- Losses on equity investments, led by SpaceX, cut EPS by $0.55, more than half the gap to consensus, but operating income also missed despite rising 30%.
- Search revenue grew 12% and missed estimates, even as query growth hit a five-year high.
- Higher 2027 capex supports Broadcom’s chip sales and raises cash questions for Meta.
Alphabet (GOOGL) stock sank 9.6% to about $294 after its third-quarter report showed a $9.07 billion free cash outflow and a Search miss.
Alphabet says its capex rises again in 2027. That’s good news for Broadcom (AVGO), which works with Google on TPUs, and a warning for Meta Platforms (META).
The Miss Came From Below the Operating Line
Other income swung to an $8.2 billion loss, mainly from an unrealized markdown on Alphabet’s SpaceX stake. Total equity-security losses of $8.7 billion reduced EPS by $0.55, equivalent to about 62% of the gap to consensus.
Operating income climbed 30% to $40.6 billion, and Google Cloud revenue grew 103% to $30.7 billion, helped by TPU system sales. But operating income still missed the $43.19 billion FactSet estimate CNBC cited, and the operating margin slipped to 31.8% from 34.0% in the second quarter.
The Cash and Search Problems Are Real
Capex hit $51.4 billion in the quarter, more than its $42.3 billion of operating cash flow. Free cash flow has fallen every quarter this year, reaching negative $9.07 billion in the third quarter:
Not all of it is capex. Operating cash flow also absorbed a $5.2 billion European Commission fine and a TPU inventory build that turns back into cash on delivery, CFO Anat Ashkenazi said on the call. And she added, “We continue to expect our CapEx to increase significantly in 2027.”
Search & other revenue grew 12% to $63.4 billion, after 17% in the second quarter. Bloomberg Tech anchor Ed Ludlow put the Search miss at about $1.5 billion on Bloomberg’s earnings special, calling it “a significant miss in this environment.” Chief Business Officer Philipp Schindler blamed currency first and said AI Mode queries earn less so far.
Broadcom Cheers, Meta Has Questions
Broadcom’s AI semiconductor revenue grew 221% to $16.7 billion last quarter, and it guided to $21.7 billion for this one. A bigger 2027 budget at Alphabet backs that up.
Meta’s $34.9 billion of third-quarter capex also topped its $32.8 billion of operating cash flow. Amazon (AMZN) reports tonight, so investors will know soon whether the cash worry stops at Alphabet.
Search Is Alphabet’s Number to Watch
Cloud doubling says the business is growing fast, and part of the cash drain is TPU inventory and a one-time fine. Search worries me more: AI Mode is driving the fastest query growth in five years, but it earns less, and Ashkenazi expects lapping last year’s acceleration to cost Search a couple more points of growth in the fourth quarter. If Search slows again on the early-February call, alongside a bigger 2027 capex number, the pressure on the stock stays.
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