Alphabet reports Q3 revenue rise but sees AI search generate lower ad earnings and larger cash outflow

Alphabet, Google’s parent company, announced third-quarter 2026 results on Wednesday, showing revenue of $128 billion, up 25% from the prior year, and net income of $26 billion. Earnings per share came in at $2.12, below the $3.02 consensus estimate, and the stock fell roughly 12% after the release.

Cloud services exceeded forecasts, generating more than $30 billion in revenue, about $1 billion above analyst expectations. However, the company highlighted slower growth in its core search business, with search volume rising 12% year over year, down from 17% in the previous quarter and 19% in Q1.

Chief Business Officer Philipp Schindler said that queries run in the new AI-powered search mode currently earn less revenue than traditional web searches because they display fewer and lower-priced ads. He added that advertisers may need time to recognize the value of AI-search advertising, noting internal research shows users find these ads more relevant.

Google plans to expand ad placements in AI Mode, including multi-turn ads that adjust as users interact with the chatbot, starting in additional international markets and expanding in the United States.

The company reported a negative cash flow of $9.06 billion for the quarter, an increase from the $5.8 billion loss in the prior period, which management attributed to heightened AI spending. Capital expenditures reached $51.4 billion, and Alphabet expects total 2026 spending of $195-$205 billion, with a target of over $300 billion for 2027. The firm cited strong cloud revenue growth, driven in part by AI compute services used by startups and larger AI firms, as a key source of funding for its AI investments.