Alphabet shares fall 7.79% as capital spending outruns cash flow

Google’s AI demand is translating into sharply higher Cloud sales, but Alphabet’s latest quarter also shows the cash demands of its buildout. Shares fell 7.79% after hours following its October 28 results. Revenue and operating income missed analyst estimates, while capital spending exceeded the cash generated by operations, according to BeInCrypto.

CEO Sundar Pichai presented the quarter as evidence that Google’s investment across models, infrastructure and products was producing growth. In his earnings-call remarks, he said Alphabet revenue rose 25% from a year earlier and described a half-trillion-dollar annual revenue run rate. He identified AI infrastructure and solutions as major drivers of Google Cloud’s 103% revenue growth.

Growth did not clear Wall Street’s expectations

Alphabet brought in $127.6 billion in quarterly revenue. That was substantial growth from a year earlier, but slightly below the analyst estimate cited by BeInCrypto. Operating income also fell short, with a larger dollar gap between the result and the forecast. The two misses put the company’s growth figures in a less favorable light:

• Revenue: $127.6 billion against an expected $127.93 billion, a shortfall of $330 million.
• Operating income: $40.58 billion against an expected $43.16 billion, a shortfall of $2.58 billion.

Earnings per share fell 26% to $2.12. In after-hours trading, Alphabet’s stock reached $296.81, down from its $321.89 closing price. The decline followed a quarter that combined higher sales with weaker per-share earnings; it does not, by itself, isolate spending as the reason investors sold.

$51.4 billionCapital spending

Spending on data centers and other capital projects rose 114% from a year earlier.

$42.3 billionOperating cash flow

Cash generated by operations was less than the quarter’s capital expenditure.

−$9.1 billionFree cash flow

Free cash flow was negative after capital spending exceeded operating cash flow.

A profitable Cloud business, a larger capital bill

The spending figure covers data centers and other capital projects, rather than a separately disclosed total for AI alone. Its effect on cash is direct: subtracting capital expenditure from operating cash flow leaves the reported $9.1 billion deficit. Alphabet nevertheless remained free-cash-flow positive over the preceding 12 months, generating $19.7 billion across that longer period.

Cloud’s own results moved in the opposite direction from the group’s earnings disappointment. Google Cloud revenue reached $30.7 billion, and its operating margin widened to 36.2% from 23.7% a year earlier. That is a 12.5-percentage-point improvement: the business did not merely sell more, but retained a larger share of its revenue as operating profit.

Those are different measures of the quarter. Cloud’s margin describes profitability within that business; Alphabet’s free cash flow reflects the company-wide cash position after capital spending. Stronger Cloud profitability therefore sits alongside, rather than cancels out, the cash cost of the wider buildout.

Usage is rising as Google adds capacity

Pichai supplied several measures of demand behind the infrastructure push. Google’s first-party model APIs—the connections through which software accesses its models—were processing nearly 32 billion tokens per minute. Tokens are units of model input and output. He said that rate was 40% above the previous quarter and more than four times the year-earlier level.

He also said the Gemini app had reached one billion users. On the infrastructure side, Pichai described strong demand for Google’s TPU computing systems and said the company was working to bring more capacity online to meet long-term demand. Those company-reported usage figures support his growth argument, while the quarter’s cash figures show the immediate financial burden.