Alphabet shares plunge 10% overnight as net income drops 25%; negative FCF amid AI splurge spook investors

The tech stocks will remain under key focus in Thursday’s trading session after Alphabet, the parent company of Google and one of the key AI hyperscalers, announced its quarterly earnings on Wednesday.

In the after-market trading session, Alphabet shares fell over 10% on reportedly weaker-than-estimated earnings growth for the quarter. The earnings were keenly monitored by market participants to gauge the outcome of massive investments made in AI infrastructure.

Here’s how Alphabet fared in Q3 of 2026

The consolidated revenue for the quarter ended September 2026 surged 25% YoY to $127.6 billion, compared to $102.6 billion for the corresponding quarter of the previous year. On a constant-currency basis, the revenue growth stood at 19%. The revenue growth was largely driven by superior performance in its core Google services segment, which grew 11% YoY to $96.3 billion. Besides this, the Google Cloud business’s revenue more than doubled to $30 billion.

In the Google Services segment, Google Search revenues continued to dominate the topline growth at 12% and made up nearly 70% of the total segment’s revenue for the quarter.

At the operating level, the operating income surged 31.8% YoY to $40.6 billion as compared to $31.2 billion in the corresponding quarter of the same year. Similarly, the operating margins surged over 130 bps to 31.8% as compared to 30.5% for the same period last year.

The net income for the quarter plunged 25% YoY to $26.1 billion as compared to $34.9 billion in the same period last year.

What disappointed investors?

Despite double-digit growth in revenue for the quarter, the company failed to meet expectations on many parameters, which soured investor sentiment. The $127 billion revenue for the quarter missed the analyst estimates of $128.2 billion. Similarly, it also failed to meet the analyst expectations of $3.0 per share EPS (earnings per share).

Besides this, the company reported a negative free cash flow of $9.07 billion vs. a positive FCF of $2 billion estimated by the analysts, which remained the catalyst behind the overnight fall. The company further guided for $195-$205 billion in capital expenditure and envisaged raising it to $300 billion in fiscal 2027.

In order to fund this growth in AI investments, the company raised massive debt this quarter of $125 billion, up from just $21.6 billion in the same quarter last year. Investor apprehensions about this massive capex spending grew as the AI-hyperscaler has yet to derive any major positive outcome from these investments.

Here is how shares have fared

The shares have largely remained muted in 2026, delivering lower single-digit returns of 2%. However, shares have declined nearly 30% from their July peaks. Besides this, shares are also trading below the 200 EMA levels for the first time since June 2025.