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Google Cloud Doubled to $30.7 Billion While Search Ads Slowed to 12 Percent — and the Stock Fell 10 Percent

Gemini · By: AIReport Admin · 1 day ago · 👁 30
Google Cloud Doubled to $30.7 Billion While Search Ads Slowed to 12 Percent — and the Stock Fell 10 Percent

Alphabet posted $127.6 billion in third-quarter revenue, up 25 percent, but missed estimates as search advertising growth decelerated to 12 percent from 17 percent the previous quarter. Google Cloud doubled to $30.7 billion, yet an $8.7 billion loss on equity stakes cut net income 25 percent to $26.2 billion, and the stock dropped about 10 percent after hours. Google is taking AI Mode ads worldwide.

Alphabet reported third-quarter revenue of $127.6 billion on Wednesday, up 25 percent year over year but just short of the $127.9 billion analysts expected — a rarity for a company that has beaten most of the year. Google Services grew 11 percent to $96.3 billion, with total advertising revenue of $82.0 billion, also up 11 percent but below the $83.6 billion consensus. Operating income rose 30 percent to $40.6 billion at a 32 percent margin, and diluted EPS came in at $2.12, down from $2.87 a year ago. The stock, which closed up 1.3 percent at $324.89, fell roughly 10 percent in after-hours trading to about $291.

The profit decline was mostly an accounting story rather than an operational one: an $8.7 billion loss on equity investments, the same stakes in companies like SpaceX and Anthropic that produced a $99 billion windfall in the second quarter. Free cash flow was negative $9.1 billion as capital expenditures ran to $51.4 billion — enormous, but actually below the $55.8 billion analysts had modeled.

The strategic news came on the earnings call: Google is expanding ads in AI Mode to international markets for the first time, alongside new multi-turn ad formats in the US. "We are now scaling high-quality ads within AI overviews in AI mode to more users and queries," chief business officer Philipp Schindler said. "This includes taking our monetization footprint global for the first time." Google said early click-through rates for sponsored listings in AI Mode are already comparable to organic results — a key prerequisite for moving search's $200-plus-billion ad business into AI-generated answers.

Sundar Pichai argued the AI shift is expanding search rather than shrinking it. Search queries are growing at their fastest year-over-year rate in five years, he said, with queries in AI Mode three times longer on average than traditional searches. One in five AI Mode searches globally now involves voice, images or documents, and Google says it now handles more than 50 billion visual searches per month.

Google Cloud was the standout: revenue of $30.7 billion, roughly double the $15.2 billion a year earlier and ahead of the $29.1 billion consensus. That is the fastest growth rate of any hyperscaler this quarter — Azure, disclosed in dollars for the first time the same evening, grew 48 percent to $33.2 billion — and it keeps cloud on track to become Alphabet's second engine.

The deceleration in core search is the number investors kept circling back to. Search advertising grew 12 percent in the third quarter, down from 17 percent in the second and 19 percent in the first — a steady slide that puts mounting pressure on AI features to become a genuine revenue source rather than a cost center. Alphabet is effectively asking the market to trade slower ad growth today for AI Mode monetization tomorrow, while absorbing more than $50 billion a quarter in capex.

Thursday brings Amazon's results, and the cloud comparisons are now unavoidable: Google Cloud doubled, Azure grew 48 percent, and AWS has yet to report. If Alphabet's quarter demonstrated anything, it is that the AI investment cycle has entered its accountability phase — the spending is on the income statement, the cloud revenue is real, and now the market wants the ad numbers to follow.

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