Alphabet’s Google Cloud more than doubled its revenue to $30.7 billion in the third quarter, helping to soften some of the more tepid growth from Google Search and YouTube.
Alphabet reported third-quarter revenue of $127.6 billion, up 25% from $102.3 billion a year earlier, roughly in line with the $127.9 billion analysts were expecting, according to consensus estimates from S&P Global Visible Alpha. Earnings tumbled to $2.12 a share from $2.87. The drop is due to an $8.7 billion paper loss on Alphabet’s equity investments, which trimmed its earnings by 55 cents per share. Meanwhile, operating income rose 30% from a year ago, but dipped slightly to $40.6 billion compared to $40.8 billion last quarter.
“We had a strong quarter and are now on a half-trillion dollar revenue run rate,” said Alphabet CEO Sundar Pichai in a statement. “Our deep full stack approach is driving momentum across the business, with Alphabet revenues growing 25% year-over year.”
In after-hours trading Wednesday, Alphabet’s stock dipped as low as 9.5%.
As for capital spending, investors are eagerly awaiting the figure among all the hyperscalers as the sizzling race for AI compute has pressed companies to splash out $2 trillion in two years. Alphabet reported that capex was $51.4 billion in the third quarter, compared to $24 billion a year ago.
The third quarter results are Alphabet’s first full results since the tech giant announced it raised $84.8 billion in equity in June, including $10 billion from Berkshire Hathaway, to fund an AI buildout. The heavy spending has pushed Alphabet’s free cash flow into negative territory, clocking in at negative $9.1 billion, compared to negative $5.9 billion in the second quarter.
Melissa Otto, global head of Visible Alpha Research at S&P Global, wrote in a note that investors have worried that Google Cloud’s profit margin had peaked last quarter but it widened to 36.2%.
Independent tech analyst Luke Lango wrote in a note immediately after Alphabet announced its results that investors were dumping stock for the wrong reason, namely that the paper loss reflects Alphabet’s stake in SpaceX. Lango called it “accounting noise,” rather than a core problem with the business.
“Alphabet is now funding the AI buildout with shareholders’ money instead of its own cash,” wrote Lango. “That’s what the market is punishing tonight. But make no mistake: this is a ‘how do we pay for it’ problem not a ‘nobody wants it’ problem.”
Disclaimer : This story is auto aggregated by a computer programme and has not been created or edited by DOWNTHENEWS. Publisher: fortune.com
