The numbers
$127.6 billion: Alphabet’s Q3 revenue, up 25% from $102.3 billion during the same period last year. Under analyst projections of $127.93 billion.
$96.3 billion: Revenues from Google Services, which includes advertising, subscriptions, digital content, and hardware. That’s up 11% year-over-year (YoY), attributed in large part to growth in the Google Search business. Ad revenues included $82 billion of the total, though that number was below analysts’ expectations of $83.5 billion.
$30.7 billion: Google Cloud revenue, up 103% YoY as the company’s AI infrastructure business booms.
$51.4 billion: Google’s capital expenditures for the quarter, spent primarily on AI infrastructure investments.
31.8%: Alphabet’s operating margin.
$2.12: Earnings per share, under analyst expectations of $2.99. The figure fell 26% due to an unrealized loss on Alphabet’s SpaceX stake, the company said.
The watercooler talk
Google’s parent company, Alphabet, reported third-quarter earnings Wednesday after the bell, a day after Google unveiled Genie 4, a realistic world model, and just hours after it debuted Gemini 4 Carbon, which the company bills as its “strongest model” yet. Google claims the AI system shows “significant gains” in agentic tasks and coding, as well as cybersecurity use cases including vulnerability detection.
While Google barrels ahead with AI growth, growth in its core search business slowed, rising at 12%, compared with 17% in the second quarter. Google’s chief business officer, Philipp Schindler, attributed the slowing rate to foreign exchange rates and one-off ad spend dips in Asia-Pacific among advertisers impacted by the EU’s elimination of its de minimis exemption on low-cost imports. He also flagged that while users are increasingly using Google’s AI-powered search experience, AI Mode, that system has fewer ads baked in and therefore makes less money.
“The strong growth in AI Mode queries had an impact [on decelerating Google Search growth] because of the lower monetization we are seeing in AI Mode,” Schindler said.
The fix? More ads in Google’s AI search experiences. Ad tests in AI Mode have returned “promising results,” Schindler said, and the company plans to scale ads in both AI Mode and AI Overviews to more users and across a wider range of queries. That includes expanding ads in AI Mode into international markets for the first time and launching multi-turn ads in AI Mode in the U.S. “To be clear, we feel very good about our trajectory here,” Schindler said, also noting that click-through rates for sponsored and organic product listings in AI Mode are “similar.”
It was another attempt from the tech giant to assure Wall Street that its original search business is alive and well, even while the product morphs into dynamic, integrated, AI-powered experiences that increasingly chip away at web publishers’ traffic. (Today, some publishers are railing against Google’s practice of using the same web crawler for both search indexing and AI by opting out of Google Search altogether. Others are suing Google for allegedly suppressing their ad revenues.) On Google’s second-quarter earnings call in July, CEO Sundar Pichai claimed AI search was “sending billions of clicks to websites every week.” Today, there was no mention of publisher traffic.
Search isn’t the only core area being overtaken by AI. Google leaders told investors that agentic commerce is an increasing focus for the business and noted that the open-source Universal Commerce Protocol already lets “hundreds of thousands of brands” like Nike, Chewy, and Tapestry switch on direct agent-led checkout.
Advertisers already have access to a slew of AI-powered tools for campaign planning, creation, management, and optimization, which would appear to be performing well for Google. The company said that Gemini helped create 1.5 billion ad campaign assets during the quarter, up 7x YoY.
Meanwhile, YouTube remains a major revenue machine at the heart of Google’s ad business. YouTube ads during Q3 grew 9% to $11.2 billion. Amazon is teaming up with YouTube Shopping and allowing creators in the U.S. market to tag Amazon products.
The overarching story, however, remains Google’s staggering AI expenditures. As some analysts have pointed out, Alphabet has essentially transformed from a cash-printing ads business to a capital-intensive AI infrastructure company, taking on more debt to support some $1 trillion in contractual commitments that include both spending promises and backstops. The key question for Wall Street is whether Google will be able to justify these enormous investments.
Google says it’s already secured $561 billion in future cloud revenue from customer contracts. But a major chunk is reportedly tied to a single customer: Anthropic committed to spend $200 billion with Google Cloud over five years, according to a May report from The Information. That setup could theoretically expose Google to greater risk; if Anthropic and other Google Cloud partners stumble financially, Google is likely to feel the pain.
Also, Google recently started renting computing capacity from third-party providers to keep abreast of demand while it builds its own data centers. That expense will put pressure on margins in the short term, according to finance chief Anat Ashkenazi.
Google did not adjust its full-year capex projections, and Ashkenazi said Google’s capex is still expected to “increase significantly” in 2027.
Google shares dropped roughly 11% in after-hours trading.
The key quote
Google is eager to explore advertising opportunities within agentic AI experiences.
“Users like choice, and they want to consider things way beyond price, like brand loyalty, customer service, and so on. So we’re really architecting these agentic workflows in a way that we can intentionally design the time and the space for users to explore those choices,” said Schindler. He added: “We’re actually confident that we can provide really interesting, compelling advertising models for agentic use cases.”
