Alphabet reported Q3 2026 revenue of nearly $128 billion with net income exceeding $26 billion, but the stock price dropped almost 12 percent following the earnings announcement. The decline stems from earnings per share of $2.12 falling well short of analyst consensus expectations of $3.02, despite a 25 percent year-over-year revenue increase.
Search growth slowed considerably. Google reported 12 percent search volume growth in Q3, down from 17 percent in Q2 and 19 percent in Q1. Search revenue remained flat. Chief Business Officer Philipp Schindler acknowledged during the earnings call that Google's AI Mode search generates less revenue per query than traditional web search, with fewer ads that cost less to run.
To offset the revenue shortfall from AI search, Google is expanding advertising in AI Mode. The company will introduce multi-turn ads in the US market, where sponsored links change continuously during conversations with the search chatbot. International markets will see additional contextual advertising in AI Mode.
Google's negative cash flow worsened significantly. The company reported negative cash flow of -$9.06 billion in Q3, up from -$5.8 billion in the prior quarter, driven by capital expenditures of $51.4 billion. Google forecasts total 2026 spending between $195 billion and $205 billion, with plans to target more than $300 billion in AI investment in 2027.
Google Cloud revenue crossed $30 billion, beating analyst expectations by about $1 billion. The company points to cloud revenue more than doubling over the past year as justification for continued AI spending, noting that AI startups pay to run models on Google's infrastructure.