Google Cloud Grew 103%, So What Went Wrong With Alphabet's Profit?

Alphabet delivered the biggest cloud quarter in its history and still saw its stock sink. On October 28, Alphabet reported revenue of $127.6 billion, up 25%, and Google Cloud revenue of $30.7 billion, up 103%. But earnings per share of $2.12 fell well short of the roughly $3.02 analysts expected, and shares dropped about 10% in after-hours trading.

This article is for information only, not investment advice. Speak with a licensed financial advisor before making any financial decisions.

What Were Alphabet's Headline Numbers?

Strong growth almost everywhere, per Alphabet's earnings release:

• Revenue: $127.6 billion, up 25%, the 13th straight quarter of double-digit growth

• Google Services: $96.3 billion, up 11%, with Search and other up 12% and Search query growth the highest in five years

• Google Cloud: $30.7 billion, up 103%, with operating income of $11.1 billion

• Operating income: $40.6 billion, up 30%, at a 31.8% margin

• Net income to common stockholders: $26.2 billion, down about 25%, with EPS of $2.12

CEO Sundar Pichai said Alphabet is now on a half-trillion-dollar revenue run rate.

Why Did Profit Fall When Revenue Soared?

Because of an accounting loss on a SpaceX investment. Alphabet's "other income and expense" line was negative $8.2 billion, which the company said came primarily from an unrealized loss on its SpaceX investment after SpaceX's stock price declined. That is a mark-to-market change, not cash leaving the business, and it follows a $98 billion gain on equity securities in the second quarter, so profit swings have been large in both directions. Operating income, which excludes that line, grew 30%.

What Drove Google Cloud's 103% Growth?

AI demand, including a new revenue stream. Alphabet said growth was led by enterprise AI infrastructure and AI solutions, plus core cloud services, and that TPU systems sales were a meaningful contributor. Google Cloud now has 18 product lines with more than $1 billion in annual revenue. Its first-party model APIs are processing nearly 32 billion tokens per minute, more than four times a year ago, and the Gemini app reached one billion users. It also follows reports that OpenAI will sell models such as GPT-6 Astra through Google Cloud, and a report that OpenAI plans to buy Google's TPUs, which has not been confirmed.

How Much Is Alphabet Spending on AI?

A great deal, and still rising. Quarterly capital spending was $51.4 billion, roughly 65% on servers and networking and 35% on data centers. Alphabet left its 2026 capital spending guidance at $195 billion to $205 billion, after raising it in July. Negative free cash flow is the other side of that: heavy spending is now outrunning cash generation in the quarter. The debate over whether AI spending pays off is what investors are weighing.

How Did the Market React?

Sharply negative. Alphabet shares closed at $322.22 and fell about 10.4% to roughly $288.35 in after-hours trading, according to Investing.com. Revenue beat estimates, but the EPS miss, driven by the SpaceX loss, and the cash flow picture dominated. The stock's regular-session move could differ from the after-hours reaction.

What Does This Mean for Businesses?

Cloud AI demand is real, and so is the cost of supplying it.

• Expect strong competition among clouds, which can help buyers negotiate on price and terms

• Ask providers about capacity, since growth this fast can mean tight supply for some AI workloads

• Compare TPU and GPU options for your AI workloads, now that Google sells TPU systems directly

Our machine learning development team can help you compare cloud and chip options for your AI workloads.