The worst session since 2004
On October 29, 2026, Alphabet fell on the stock market by as much as about 13%, the most negative session since its market debut in 2004, with market capitalization evaporating by close to $500 billion. The reaction came after the quarterly report released the previous evening, which fell short of analysts' expectations on some items deemed decisive, according to AI4Business. The paradox is that the group's total revenue reached $127.58 billion, up 25% year on year, with operating profit of $40.58 billion, up 30%.
Slower search, cloud racing ahead
The figure that weighed most concerns Google Search & other: revenue came in at $63.35 billion, up 12% from a year earlier, versus 19% in the first quarter and 17% in the second. Estimates from eight analysts compiled by Zacks indicated about $64.99 billion, or $1.64 billion more than the actual result. On the opposite side, Google Cloud accelerated from 63% to 103%, beating the average estimate of $29.16 billion and closing at $30.71 billion with $11.12 billion in operating profit.
On the conference call, CEO Sundar Pichai argued that the number of searches is growing at the fastest rate in five years. However, Chief Business Officer Philipp Schindler also attributed the deceleration to currency effects, described as the largest contributor to the slowdown, and to specific dynamics in some advertising sectors.
The monetization and cash challenge
Management pointed to one cause: the lower monetization of AI Mode, the conversational mode that allows users to query Google like a chatbot: revenue per search is now lower than for traditional search. The material does not allow attributing the entire difference between 17% and 12% to AI, nor calculating the margin of a single query, since Alphabet does not publish a separate income statement for Search.
On the financial front, operating cash generation was $42.3 billion, while capital expenditures reached $51.4 billion, resulting in negative free cash flow of $9.1 billion for the second consecutive quarter. The figure should be read with caution: liquidity was also reduced by an extraordinary payment of $5.2 billion for a European fine over Android and by the build-up of inventories of TPU systems. CFO Anat Ashkenazi confirmed investments of between $195 billion and $205 billion for 2026, rising in 2027.
Net income fell from $34.98 billion to $26.17 billion, mainly due to an unrealized loss of about $8.7 billion on its stake in SpaceX. It remains to be seen how the new conversational mode will translate into advertising revenue: that is the question the market posed with the stock's plunge.
