Why Alphabet stock fell 10% despite strong revenue growth and Google Cloud gains

Alphabet shares fell more than 10% after Google’s parent company reported weaker-than-expected quarterly earnings and a sharp drop in free cash flow, raising fresh questions about the cost of its artificial intelligence (AI) expansion. Revenue rose 25% year on year to $127.58 billion, but both revenue and adjusted earnings per share missed analyst estimates.

The company’s results highlight a growing challenge for Big Tech: AI is driving demand for cloud computing and new products, but building the infrastructure to support it requires enormous investment.

Alphabet earnings miss estimates as cash flow turns negative

Alphabet reported adjusted earnings per share of $2.67, below the $3.02 expected by analysts polled by LSEG. Revenue of $127.58 billion also fell short of the $128.22 billion forecast. Net income declined to $26.17 billion from $34.98 billion a year earlier. More concerning for investors, the company recorded negative free cash flow of $9.07 billion, significantly worse than the $2.70 billion analysts had expected.

Free cash flow measures the money left after operating expenses and capital investment. A negative figure means the company spent more cash than it generated under this measure during the period. Alphabet spent $51.36 billion on capital expenditure in the quarter, below analyst expectations of $55.09 billion. However, the company maintained its 2026 spending forecast of $195 billion to $205 billion.

Google Cloud grows as AI investment accelerates

Google Cloud was a bright spot. Revenue more than doubled to $30.7 billion, beating the $28.7 billion analysts expected. The division provides cloud infrastructure and AI services to businesses and developers. Google also said its Gemini app had reached one billion users, while chief executive Sundar Pichai pointed to strong growth in search activity supported by AI investments. Search revenue rose 12% to $63.35 billion, but still missed the $64.96 billion estimate. The results suggest that AI is creating opportunities for Google while also putting pressure on the company to demonstrate that its investments can generate sufficient returns.

Alphabet signals bigger AI spending in 2027

Chief financial officer Anat Ashkenazi said Alphabet expects capital expenditure to increase significantly in 2027. Spending could exceed $300 billion that year, according to the supplied report. The company’s long-term debt also climbed to $125.1 billion, compared with $21.6 billion a year earlier.

For investors, the concern is not simply how much Alphabet spends, but how quickly those investments translate into sustainable revenue and profits. Strong cloud growth and Gemini adoption offer encouraging signs, yet the latest earnings miss shows that the market is demanding clearer financial returns from the AI boom.