Google parent company Alphabet Inc. came up short of Wall Street expectations despite strong revenue growth in its third-quarter results, which sent its stock falling in after-hours trading Wednesday.
The Mountain View, California-based company said its net income was $26.17 billion in the July-September period. That’s down from $34.98 billion in the same period a year earlier.
Revenue grew 25% from the same period last year to $127.58 billion, but that was shy of analysts' expectations. Analysts, on average, were expecting revenue of $127.97 billion, according to a poll by FactSet.
The company earned $2.12 per share, reflecting an $8.7 billion loss on equity investments that reduced earnings by 55 cents per share. Analyst estimates were around $3.01 per share.
Sundar Pichai, CEO of Google and Alphabet, said in a statement that the quarter was strong and that the company is “now on a half-trillion dollar revenue run rate. Our deep full stack approach is driving momentum across the business,” he said, pointing to the 25% revenue growth year-over-year.
Pichai also said the Gemini app, its artificial intelligence assistant, has reached 1 billion users, which makes it the fastest-growing product in Google's history.
Google and Alphabet's Chief Financial Officer Anat Ashkenazi said on a call with investors Wednesday that the company continues to expect its capital expenditures to “increase significantly” in 2027, which she said will be explained in further detail during the fourth quarter call.
The company's revenue growth was driven by its Google Cloud segment, which delivered record growth. Its revenue increased 103% from last year to $30.7 billion.
Pichai said that the company's AI infrastructure and solutions are the “major drivers for cloud growth and our customers see us as the leading provider here, so there’s huge demand.”
“Alphabet was viewed as behind in the AI race not long ago, and this quarter makes a real case that it can start taking the lead from Microsoft. The problem is everything else,” said David Wagner, head of equity and portfolio manager at Aptus Capital Advisors.
Google Search and other advertising revenues increased by 12% to $63.3 billion, and advertising revenue from YouTube, which Google owns, increased 9% to $11.2 billion. These increases came in lower than some analysts expected, sparking concerns about a deceleration in growth despite Pichai saying the year-over-year query growth rate is the highest it’s been in the last five years.
“In a market worried about AI cannibalizing the franchise, investors need to see Search accelerating, not decelerating,” Wagner said in a statement.
Alphabet’s shares had fallen more than 10% to $289.95 in after-hours trading.