Google’s parent company, Alphabet, has experienced a decline of around 10% in its share price in after-hours trading. The decrease came after the company reported weaker-than-expected third-quarter results. In contrast, Microsoft shares rose after the software giant reported better-than-expected earnings, showcasing the different investor response even though both technology companies invested heavily in AI.
Alphabet reported revenue of $127.6 billion for the quarter ended September 30. The performance fell short of analysts’ expectations of $128.2 billion. Its adjusted earnings per share came in at $2.67, missing the $3.02 forecast.
Net income available to common shareholders fell 25% year-on-year to $26.17 billion.
Why did Alphabet stock fall?
What pervaded doubt in the company’s shareholders’ minds was its advertising business, which is its major source of revenue. Google advertising revenue reached $82.01 billion, missing estimates of around $83.4 billion. Search advertising growth also slowed more than expected as users increasingly explored AI-powered search features. Google’s AI Mode is still experimenting with advertising, raising questions about whether the company can maintain its traditional search revenue as user behaviour changes.
Another understandable concern was the company’s AI expenditure as Alphabet reported negative free cash flow of $9.07 billion, compared with expectations of a figure close to break-even. The company is splurging on AI research, data centres and cloud infrastructure, while warning that capital expenditure will increase significantly in 2027.
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Why did Microsoft shares rise?
While Alphabet’s shares plunged, another giant in the same industry, Microsoft, experienced a favourable response in the stock market. Microsoft’s shares rose nearly 4% after reporting revenue of $92.3 billion for its fiscal first quarter, up 19% year-on-year and ahead of market expectations. Adjusted earnings per share stood at $4.89, beating estimates of $4.72.
Its Azure cloud business grew 48%, reflecting continued demand for AI and cloud computing services.
While both companies are investing heavily in artificial intelligence, investors are looking for evidence that these investments will generate sustainable growth and cash flows.
Alphabet’s Google Cloud business remained a bright spot, with revenue more than doubling to $30.71 billion. However, strong cloud growth was not enough to offset concerns over advertising and the cost of its AI expansion.
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