TL;DR — Alphabet stock dropped 12.6% on October 29, wiping out about $475 billion in market value, a day after Google Cloud revenue more than doubled to $30.7 billion. The market sold the rest of the quarter: Search growth slowed to 12%, capex hit $51.4 billion and free cash flow went negative $9.1 billion.
The Alphabet stock drop after its third-quarter report was the largest one-day loss of market value in the company’s history. Class A shares closed at $283.82 on October 29, down 12.6% from $324.89, and slipped another 1.4% to $279.84 the next session. Yahoo Finance put the one-day loss at about $475 billion, against a previous record of roughly $275 billion set on July 23.
The quarter itself was not small. Revenue rose 25% to $127.6 billion, operating income rose 30% to $40.6 billion, and Google Cloud more than doubled. But diluted earnings per share fell to $2.12 from $2.87 a year earlier, against a consensus near $3.02, and free cash flow stayed negative for a second straight quarter. Investors weighed the second set of numbers more heavily than the first.
Google Cloud Did Exactly What Bulls Asked For
Google Cloud revenue reached $30.7 billion, up 103% from $15.2 billion a year earlier. Its operating income tripled to $11.1 billion, a 36.2% margin, after some investors had argued in the summer that Cloud margins had peaked. They widened instead.
The pipeline behind it grew too. CFO Anat Ashkenazi said the Cloud backlog stood at $561 billion at the end of September, and that Alphabet expects to recognize “just over 55%” of it as revenue over the next 24 months. That is roughly $300 billion of contracted revenue scheduled through late 2028. Our Google Cloud reference page covers how the segment got to this point.
Other usage figures moved the same way. Sundar Pichai said the Gemini app passed 1 billion users and first-party model APIs processed nearly 32 billion tokens per minute, 40% more than the prior quarter.
Search Slowed, and the Bill Kept Growing
Search and other revenue rose 12% to $63.4 billion. Growth had been 19% in the first quarter and 17% in the second, and Fortune reported that analysts expected about 15%. Philipp Schindler called currency moves “the single largest driver” of the slowdown, and Ashkenazi said Alphabet is lapping a late-2025 acceleration worth about 3 points of growth this quarter and “a couple of points” more in the fourth.
The spending side is where the quarter turned. Capital expenditures were $51.4 billion, more than double the $24.0 billion of a year ago. Operating cash flow fell to $42.3 billion from $48.4 billion. Subtract one from the other and free cash flow was negative $9.1 billion, after negative $5.9 billion in the second quarter.
Cloud grew by $15.5 billion in a year. Quarterly capex grew by $27.4 billion over the same twelve months.
Alphabet kept its 2026 capex guidance at $195 billion to $205 billion and said spending will “increase significantly in 2027,” with details on the fourth-quarter call. Analysts cited by Fortune project about $300 billion next year. The filing also lists $924 billion in future purchase commitments, plus $152 billion in leases that have not started yet.
Two other lines changed. Alphabet repurchased $0 of stock in the quarter, against $11.5 billion a year earlier, while still paying $2.9 billion in dividends (our buyback page tracks the history). And the earnings miss was partly an accounting swing: an $8.7 billion loss on equity securities, mainly an unrealized markdown of the SpaceX stake, took about 55 cents off EPS. In the second quarter, the same mechanism worked the other way, as we wrote when Alphabet booked $77 billion from marking up Anthropic and SpaceX.
Price Targets Came Down, Ratings Mostly Didn’t
Most brokers cut their targets on October 29 and 30 but kept positive ratings. A sample of the moves:
- BMO Capital (Brian Pitz) cut to $425 from $480, Outperform, citing the Search miss, higher AI compute costs and $27 billion left on Alphabet’s at-the-market share offering program.
- Cantor Fitzgerald cut to $350 from $420, Overweight, noting operating profit came in 7% below prior Street estimates.
- Wells Fargo cut its target to $371, according to MarketBeat.
The disagreement is about Search, not Cloud. Jeffrey Wlodarczak of Pivotal Research told Yahoo Finance that bears will argue this is “the first quarter that AI is starting to seriously hurt their search business.” Angelo Zino of CFRA called the pullback “probably” a buying opportunity. Pichai, for his part, said query growth is the highest in five years.
Alphabet is not alone in this position. When we added up the Big Four’s combined 2026 AI capex guidance in September, two of the four already had negative free cash flow. Alphabet has now reported two such quarters in a row, although trailing twelve-month free cash flow is still positive at $19.7 billion.
What the Fourth Quarter Has to Answer
Three numbers will matter on the next call. First, the 2027 capex figure: whether it lands near the $300 billion analysts expect, or above. Second, Search growth once the late-2025 comparison fades, which management says costs a couple more points in the fourth quarter. Third, whether free cash flow turns positive again or posts a third negative quarter, with $265.1 billion in cash and marketable securities against $125.1 billion of long-term debt as the cushion.
Figures come from Alphabet’s third-quarter earnings release filed with the SEC on October 28 and the earnings call posted on Alphabet’s investor relations site; the market-value figure and analyst comments are from Yahoo Finance, with Search expectations from Fortune. Disclosure: the author holds a long position in Alphabet (GOOGL/GOOG), and nothing here is investment advice. Our About page explains how we handle disclosure.
