Alphabet Q3: Google Cloud revenue jumps 103% but search and ad sales miss forecasts

The quarter sets Cloud strength against core advertising weakness, and the search miss is likely to dominate the initial reaction. Search remains the profit engine funding Alphabet’s AI build-out. Capex came in about $4.4 billion below forecast, after Microsoft also underspent earlier in the evening, so traders may question the near-term pace of hyperscaler orders for AI chips and data centre equipment. The equity securities loss inflates the headline EPS decline, so expect focus on underlying operating performance, where the miss is smaller but still present.---Earlier:Microsoft Q1 beats as Azure grows 48% and capex lands $6bn below forecast--- Google Cloud doubled and beat, but the advertising businesses that pay for Alphabet’s AI ambitions came up short, leaving investors weighing tomorrow’s growth against today’s profit engine.Summary:EPS of $2.12, down from $2.87 a year earlier, weighed by a net loss of around $8.7 billion on equity securitiesRevenue of around $127.6 billion narrowly missed estimates of about $127.9 billionGoogle Cloud revenue grew 103% to around $31 billion, beating forecasts of about $29 billionSearch and other revenue of around $63 billion and YouTube ads of around $11.2 billion both missed expectationsOperating income of around $41 billion missed forecasts of about $43 billionCapex of around $51 billion came in below the roughly $56 billion expectedYouTube Music and Premium subscriptions passed 150 million, and the company says its Gemini 4 models lead at the frontier Alphabet’s third-quarter results delivered a split verdict, with Google Cloud more than doubling its revenue and beating forecasts while the core advertising businesses fell short of expectations and an investment loss dragged down earnings.Earnings per share came in at $2.12, down from $2.87 a year earlier, a decline of about 26%. A large part of that drop traces to a net loss of around $8.7 billion on equity securities, a non-operating item tied to the value of Alphabet’s investment holdings rather than the performance of its businesses. Total revenue of around $127.6 billion was marginally below the roughly $127.9 billion analysts had expected.Google Cloud was the clear bright spot. Revenue grew 103% to around $31 billion, well ahead of forecasts of about $29 billion, confirming strong demand for the AI computing capacity and services that hyperscalers are racing to supply.The picture was weaker in the businesses that still generate most of Alphabet’s revenue. Google Services revenue reached around $96 billion, short of the roughly $98 billion expected. Within that, Search and other revenue came in at around $63 billion against estimates of about $65 billion, and YouTube advertising revenue of around $11.2 billion missed forecasts of about $11.4 billion. Search is the segment watched most closely for signs that AI-driven answers are eroding traditional query advertising, so a shortfall of around $1.5 billion is likely to revive that debate, even if the quarter alone cannot prove a trend.Operating income of around $41 billion also missed the consensus of about $43 billion. Capital expenditure totalled around $51 billion, below the roughly $56 billion analysts had forecast.The company said its Gemini 4 Argon and Carbon models now lead at the frontier of AI performance, and that YouTube Music and Premium have passed 150 million subscribers globally, a growing source of non-advertising revenue.The earnings call will be key for guidance on capex, the search outlook and whether Cloud’s growth can keep offsetting softness in advertising.  This article was written by Eamonn Sheridan at investinglive.com.