Alphabet reported third-quarter revenue of $127.6 billion on Wednesday, October 28 — up 25% year over year — but its AI infrastructure spending grew far faster, pushing free cash flow to negative $9.1 billion and sending the stock down about 8% in after-hours trading. Why it matters: this is the clearest look yet at the price of the AI build-out at one of its biggest spenders — demand is real and growing fast, but so is the bill.
October 28, 2026
What happened
Alphabet missed Wall Street expectations on the headline numbers. Earnings per share came in at $2.12, compared with an analyst forecast of $3.02, and net income fell to $26.2 billion from $34.9 billion a year earlier. Revenue of $127.6 billion narrowly missed the $128.2 billion analysts expected. Part of the earnings drop was not operational: Alphabet booked an $8.7 billion loss on equity securities, which it said reduced earnings per share by $0.55, while operating income still rose 30% to $40.6 billion.
The spending that spooked investors
Capital expenditure reached $51.4 billion in the quarter, up 114% from a year earlier, as Alphabet built data centers and bought AI hardware. Operating cash flow of $42.3 billion could not cover it, leaving free cash flow at negative $9.07 billion — far worse than the roughly $36 million outflow analysts had expected. Alphabet said it expects full-year infrastructure spending in 2026 to land between $195 billion and $205 billion. Alphabet, Amazon, Microsoft and Meta are together projected to spend well over $700 billion in 2026 expanding AI data centers, chips and networking.
The bright spot: Google Cloud doubled
Google Cloud revenue grew 103% year over year to $30.7 billion, beating analyst estimates, with operating income rising to $11.1 billion and its margin widening to about 36%. Alphabet credited enterprise AI infrastructure, AI solutions, core cloud services and sales of its TPU systems, and said its custom-chip business was a meaningful contributor to growth. CEO Sundar Pichai said Alphabet is now at a half-trillion-dollar annual revenue run rate, that Search query growth is the highest it has been in five years, and that its first-party model APIs are processing nearly 32 billion tokens per minute — 40% more than last quarter and more than four times a year ago. The Gemini app reached one billion users, which Pichai called the fastest-growing product in Google’s history.
Why it matters
For anyone who uses or builds on AI tools, this quarter is the trade-off in one report. The spending is buying real usage — Cloud doubling, token volume quadrupling, a billion Gemini users — but it is now large enough to turn a hugely profitable company cash-flow negative for a quarter. If that spending keeps outrunning the revenue it creates, expect pressure for higher prices, tighter free tiers, or slower rollouts across the industry. If Cloud keeps doubling, Alphabet will argue the bill was worth it. Either way, the AI race is no longer just about who has the best model. It is about who can afford to keep building.
Frequently asked questions
Why did Alphabet stock fall after earnings?
Shares fell about 8% in after-hours trading because earnings and revenue missed estimates while capital spending surged 114% to $51.4 billion, pushing free cash flow to negative $9.1 billion — much worse than expected.
How much is Alphabet spending on AI infrastructure?
Alphabet spent $51.4 billion on capital projects in the third quarter alone and expects full-year 2026 infrastructure spending of $195 billion to $205 billion.
How fast is Google Cloud growing?
Google Cloud revenue grew 103% year over year to $30.7 billion in the quarter, ahead of analyst estimates, driven largely by demand for AI infrastructure and services.
How many people use the Gemini app?
CEO Sundar Pichai said the Gemini app has reached one billion users, making it the fastest-growing product in Google’s history.
Sources: Alphabet / Google (CEO earnings remarks), TalkMarkets, TickerRoast, BeInCrypto