Key facts
- Alphabet's Q3 revenue missed expectations, largely due to AI Mode impacting search advertising revenue.
- AI Mode, while reaching one billion users, generates less revenue per query than traditional search.
- Google Cloud revenue surged, more than doubling year-on-year.
- The company reported its second consecutive quarter of negative free cash flow.
- Capital expenditure more than doubled year-on-year, with further increases expected in 2027.
Alphabet, the parent company of Google, experienced a significant market value drop of over $500 billion, with shares slumping as much as 13.5% on Thursday. This followed the release of its third-quarter 2026 results, which missed Wall Street expectations on most metrics, particularly in its core search business. The decline is largely attributed to concerns over how AI-driven search features are impacting the company's traditional advertising revenue model. While Google Cloud showed strong growth, the core search advertising revenue missed estimates, as AI Mode provides direct answers, reducing the need for users to click on ads. The company also reported negative free cash flow for the second consecutive quarter and a substantial increase in capital expenditure.