Alphabet, the parent company of Google, has experienced a significant drop in market value, losing approximately $500 billion, following a report of lower-than-expected profits for the third quarter of 2026. The decline comes amid concerns over slowing advertising growth and increasing expenses related to artificial intelligence (AI) development.
During the July–September quarter, Alphabet reported a net profit of $26.2 billion, marking a 25% decrease from the same period last year. Earnings per share reached $2.12, falling short of market expectations. Despite the profit decline, the company’s revenue saw a 25% year-on-year increase, totaling $127.6 billion, although this figure slightly missed forecasts.
Advertising, a major revenue source for Alphabet, showed signs of decelerating growth. Advertising revenue grew by 11% to $82 billion, while revenue from Google Search increased by 12% to $63.4 billion. YouTube’s advertising revenue rose 9% to $11.2 billion, a drop from the previous quarter’s growth rate.
Conversely, Google Cloud reported strong performance, with revenue surging 103% to $30.7 billion due to rising demand for cloud computing services and AI infrastructure. The division’s operating income tripled to $11.1 billion, underscoring the growing significance of cloud services for Alphabet.
Alphabet is expanding its AI chip business to cater to the increasing demand from companies developing advanced AI systems. The company’s Tensor Processing Units (TPUs) are being positioned as alternatives to Nvidia’s chips, potentially opening new revenue streams.
However, this expansion incurs substantial costs. Alphabet’s capital expenditures for the third quarter amounted to $51.4 billion, more than double the previous year’s $24 billion, with most of the investment directed towards data centers, AI chips, and related infrastructure. The company anticipates capital expenditures to reach between $195 billion and $205 billion in 2026, with further increases expected in 2027.
Despite challenges in its advertising sector, Alphabet’s AI initiatives are gaining traction, with its Gemini application reaching one billion users. The company’s AI models are processing significantly more data than a year ago, as Alphabet continues to invest heavily in AI products and infrastructure. Nonetheless, the company also reported an $8.7 billion loss on equity investments, adding pressure on its quarterly profitability. These results highlight the balancing act Alphabet faces between its traditional advertising business and costly AI investments.