Alphabet, the parent company of Google, is set to report its third-quarter earnings after the bell Wednesday, with analysts expecting revenue of $128.2 billion and earnings per share of $3.02. The report comes at a tense moment for Wall Street, as investors grow increasingly wary of the massive costs tied to the artificial intelligence buildout.
Alphabet shares have dropped in five of the past six sessions through Tuesday and are down about 7% in October, reflecting concern over the escalating price tag of AI. The company lifted its full-year capital expenditure forecast to between $195 billion and $205 billion in July, up from prior guidance of as much as $190 billion, and reported negative free cash flow for the first time.
For the third quarter, analysts expect capital expenditure to jump 130% from a year earlier to $55.2 billion, according to FactSet. Annual capex is expected to top $200 billion before exceeding $300 billion in 2027. Negative free cash flow of $2.27 billion is projected, with the deficit expected to widen for each of the next four quarters.
On the positive side, Alphabet's cloud division is forecast to see revenue growth of 90% to $28.7 billion, as the company takes market share from larger rivals Amazon Web Services and Microsoft Azure. Google is adding its Gemini models to enterprise offerings and ramping up sales of custom tensor processing units that compete with Nvidia's graphics processing units.
At the same time, Google's core search business faces pressure from OpenAI and Anthropic, as well as from a wave of new AI agents.
"Google continues to be well-positioned across AI," analysts at Citizens wrote in a report last week. "That said, execution risk exists, and we are incrementally cautious on Search as we believe competition is increasing with agents and requires another pivot."
Company executives are scheduled to hold a conference call with analysts at 4:30 p.m. ET.
Analysis
Why This Matters
- Alphabet's earnings report is a key indicator for AI industry health.
- The balance between cloud growth and rising AI infrastructure costs is a central theme for Big Tech.
- Investors are scrutinising whether AI investments will translate into sustainable profits.
Background
Alphabet has been aggressively expanding its AI capabilities, through its Gemini models and custom TPUs. The company's cloud division is growing rapidly, taking share from AWS and Azure. However, this expansion has come with ballooning capital expenditure, leading to negative free cash flow. In July, Alphabet raised its full-year capex forecast to between $195 billion and $205 billion. The third-quarter results will be closely watched for signs of whether this spending is paying off.
What to Watch
- The earnings call at 4:30 p.m. ET for executive commentary on AI strategy and competition.
- Cloud growth trajectory: whether the 90% growth rate holds and whether the cloud business can sustain momentum as search faces pressure from AI-powered agents.
- Future capex guidance: any change in the 2027 forecasts as Alphabet continues to invest.
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12 claims in this story checked against 1 source: 9 supported.
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- SupportedAI spending concerns are unsettling investors.Tech: “Still, the report arrives at a skittish moment on Wall Street, with investors growing more concerned about the costs tied to the artificial intelligence buildout.”
- Partly supportedCloud growth is forecast at 90%, while capital-expenditure concerns weigh on Alphabet shares.Tech: “The company is projected to show cloud growth of 90% to $28.7 billion, as Google continues taking market share from larger rivals Amazon Web Services and Microsoft Azure.”
- SupportedAlphabet is set to report third-quarter results after the bell on Wednesday.Tech: “Alphabet is set to report third-quarter results after the bell on Wednesday.”
- SupportedAnalysts expect revenue of $128.2 billion and earnings per share of $3.02.Tech: “Earnings per share: $3.02 Revenue: $128.2 billion”
- SupportedCitizens analysts wrote that Google is well-positioned across AI, but that execution risk exists and they are incrementally cautious on Search because competition is increasing with agents and requires another pivot.Tech: “"Google continues to be well-positioned across AI," analysts at Citizens – who recommend buying the stock – wrote in a report last week. "That said, execution risk exists, and we are incrementally cautious on Search as we believe competition is increasing with agents and requires another pivot."”
- Partly supportedAlphabet shares fell in five of the past six sessions through Tuesday and were down about 7% in October, reflecting concern about AI's escalating price tag.Tech: “Shares of the Google parent have dropped in five of the past six sessions through Tuesday and are down about 7% in October. In July, the company lifted its full-year forecast for capital expenditures to between $195 billion and $205 billion, up from prior guidance of as much as $190 billion.”
- SupportedIn July, Alphabet raised its full-year capital-expenditure forecast to $195 billion–$205 billion, from prior guidance of up to $190 billion.Tech: “In July, the company lifted its full-year forecast for capital expenditures to between $195 billion and $205 billion, up from prior guidance of as much as $190 billion.”
- SupportedAlphabet reported negative free cash flow for the first time.Tech: “At the same time, the company reported negative free cash flow for the first time.”
- SupportedAnalysts expect third-quarter capital expenditure to rise 130% year over year to $55.2 billion.Tech: “For the third quarter, analysts are expecting Alphabet to show capex growth of 130% from a year earlier to $55.2 billion, according to FactSet.”
- SupportedAnnual capital expenditure is expected to top $200 billion before exceeding $300 billion in 2027.Tech: “Annual capex is expected to top $200 billion before exceeding $300 billion in 2027.”
- SupportedAnalysts project negative third-quarter free cash flow of $2.27 billion, with the deficit expected to widen for each of the next four quarters.Tech: “Meanwhile, analysts see negative free cash flow of $2.27 billion in the third quarter, and expect that gulf to widen for each of the next four quarters.”
- Partly supportedAlphabet's core search business faces pressure from OpenAI, Anthropic and new AI agents.Tech: “At the same time, Google's core business is under pressure from OpenAI and Anthropic as well as from a blitz of new agents on the market.”
