Google’s cloud sales doubled to $30.7B, but spending turned its cash flow negative

Alphabet’s shares fell about 7% after the Google parent’s third-quarter results, the Financial Times reported, as revenue and profit missed estimates. According to the company’s filing, revenue rose 25% to $127.6 billion, while free cash flow came in at negative $9.1 billion.

The Financial Times said the search business undershot expectations. Alphabet’s own earnings exhibit, filed with the SEC on Oct. 28, gives the detail behind that reaction: very fast growth in AI infrastructure, a slower core business and a much heavier bill for building it.

Cloud more than doubles while search grows 12%

Google Cloud revenue reached $30.7 billion, up 103%, and its operating income rose to $11.1 billion from $3.6 billion a year earlier. Alphabet said sales of its TPU systems contributed meaningfully to that growth. CEO Sundar Pichai credited “huge demand for our AI infrastructure and AI solutions.”

Google Services, the larger unit, brought in $96.3 billion, up 11%. Within it, Search and other revenue was $63.4 billion, up 12%. YouTube ads were $11.2 billion, and subscriptions, platforms and devices were $14.3 billion. The Information separately reported that Services growth was the slowest since the first quarter of last year.

Consolidated operating income rose 30% to $40.6 billion, a margin of 31.8%. Net income, however, fell to $26.2 billion from $35.0 billion in the same quarter a year earlier, and diluted earnings per share dropped to $2.12 from $2.87. Alphabet attributes part of that to a loss of $8.7 billion on equity securities, which it says reduced net income by $6.7 billion, or $0.55 per share. The Information, citing S&P Capital IQ, said net profit was well below analysts’ estimates.

On usage, Alphabet said its first-party model APIs now process nearly 32 billion tokens per minute, more than four times the rate a year ago, and that the Gemini app has reached one billion users. Pichai said Gemini 4 Argon and Carbon are “leading at the frontier.” These are the company’s own claims and were not independently verified here.

A $51.4 billion quarter of spending and new debt

Capital expenditure was $51.4 billion in the quarter and $132.0 billion for the first nine months of the year. Operating cash flow was $42.3 billion, so the gap pushed free cash flow to negative $9.1 billion. The Information noted this was the second straight negative quarter, after negative $5.9 billion in the previous one.

Funding that build-out has changed the balance sheet. Long-term debt stood at $125.1 billion, up from $46.5 billion at the end of last year, and Alphabet raised $28.7 billion in net proceeds from senior notes in the quarter. It also issued Class A and Class C shares under an at-the-market program, worth $4.3 billion and $8.1 billion respectively, with $27.6 billion still available. The company made no share buybacks in the quarter. Interest expense rose to $967 million from $143 million a year earlier. Cash and marketable securities were $265.1 billion, and headcount grew to 204,757 from 190,167.

Strategy: Selling the chips as well as the cloud

The numbers point to a company that is turning its AI hardware into a product in its own right. TPU system sales are now named as a driver of Cloud growth, and The Information reported on Monday that Google had struck a deal to sell TPUs to OpenAI, on the same day Google announced a deal with Oracle to offer the chips. According to The Information, Pichai said last quarter that he expects the “vast majority” of TPU revenue to arrive in 2027, which means the spending is running ahead of the income it is meant to produce.

That timing is what investors appear to have reacted to. A cloud unit doubling in size did not offset a core business growing around 11% while the group burns cash and borrows heavily. The Financial Times framed the drop as a result of the search miss and surging AI spending.

Alphabet is not alone in financing AI with outside capital. Bloomberg reported, via Techmeme, that Meta’s $25 billion share sale was oversubscribed fivefold as it seeks $98 billion for AI spending, a move we covered in our report on Meta’s stock sale. Nvidia’s role in that offering is covered in our article on its $3 billion investment.

What the filing does not settle

The release does not disclose a cloud backlog or give the share of Cloud revenue that comes from TPU sales, so the size of the chip business cannot be read from it. It also gives no breakdown of how much of the search shortfall the Financial Times describes comes from AI features changing user behavior. Alphabet says the year-over-year growth in Search queries is the highest in five years, which sits uneasily next to the slower revenue reaction and is not explained in the filing.

Reports on the size of the share-price fall differ with timing: the Financial Times cites 7%, while The Information reported a drop of nearly 9% in after-hours trading. Further moves will depend on how investors weigh the Cloud surge against the cash drain, with the TPU revenue not expected in full until 2027, according to Pichai’s earlier comments as reported by The Information.