Alphabet (GOOGL) has reported a strong third-quarter earnings report that exceeded analyst expectations, propelling shares to a 5% increase in after-hours trading. The tech giant’s performance underscores the continued strength of its core advertising business and the accelerating growth of its cloud computing division, fueled by the rising demand for AI solutions.
Here’s a breakdown of the key figures, compared with estimates from analysts polled by LSEG:
- Revenue: $102.35 billion vs. $99.89 billion estimated
- Earnings per share: $3.10 adj. vs $2.33 estimated
Wall Street also focused on these additional metrics:
- YouTube advertising revenue: $10.26 billion vs. $10.01 billion, according to StreetAccount
- Google Cloud revenue: $15.15 billion vs. $14.74 billion, according to StreetAccount
- Traffic acquisition costs (TAC): $14.87 billion vs. $14.82 billion, according to StreetAccount
A significant highlight of the earnings report was the robust momentum in Google Cloud. The division is capitalizing on the heightened interest in artificial intelligence, attracting both new clients and expanding relationships with existing ones. To meet this burgeoning demand, Alphabet has revised its capital expenditure forecast upward for fiscal year 2025.
“With the growth across our business and demand from Cloud customers, we now expect 2025 capital expenditures to be in a range of $91 billion to $93 billion,” the company stated in its earnings report.
During the earnings call, CFO Anat Ashkenazi signaled further investment on the horizon. “Looking out to 2026, we expect a significant increase in CapEx and will provide more detail on our fourth quarter earnings call,” she said.
The trend towards increased capital expenditure started earlier in the year, as Alphabet adjusted its initial expectation from $75 billion to $85 billion, primarily allocated to bolstering its technical infrastructure, particularly data centers essential for its AI initiatives. This sustained investment underscores the company’s commitment to supporting the ongoing surge in demand for its AI-driven services.
“We continue to drive strong growth in new businesses. Google Cloud accelerated, ending the quarter with $155 billion in backlog,” said CEO Sundar Pichai in the earnings release. This backlog stems primarily from robust demand for enterprise-grade AI infrastructure, encompassing advanced processing units and adoption of the Gemini 2.5 AI model, according to Ashkenazi. This highlights a strategic alignment of AI innovation with practical business applications.
The financial results indicate a cloud segment revenue of $15.15 billion, an impressive 35% increase compared to the same period last year. This growth trajectory positions Google Cloud as a significant growth engine within Alphabet’s expansive portfolio.
“We have signed more deals over one billion dollars through Q3 this year than we did in the previous two years combined,” noted Pichai. This trend is substantiated by the significant $10 billion cloud contract secured with Meta, underscoring Google Cloud’s capabilities at scale and its credibility in the enterprise sector.
Alphabet, which posted 32% cloud revenue growth the previous quarter, is effectively competing within the cloud market against its major competitors. Microsoft (MSFT), in its own earnings report, recorded a 40% revenue increase in its Azure cloud business, suggesting a competitive but expanding market opportunity for all major players. This also points to the notion that cloud adoption is not a zero-sum game, but rather a secular trend driven by the digital transformation of industries across the board.
According to Pichai, over 70% of Google Cloud’s client base is actively engaged with its diverse AI product offerings, emphasizing the success of the company’s approach to integrate AI solutions and expand revenue streams. This strategy is focused on providing greater value to its customers, enhancing existing services with AI capabilities, rather than only acquiring new customers to adopt AI.
Google’s Gemini AI app has demonstrated substantial user growth, now boasting over 650 million monthly active users, an increase from the 450 million reported in the previous quarter. Comparing this with OpenAI’s ChatGPT, which CEO Sam Altman recently announced has reached 800 million weekly users, highlights the competitive landscape in user adoption and preference among AI platforms.
Google’s search business continues to be a major revenue driver, generating $56.56 billion in revenue, reflecting a 15% increase year-over-year. This consistent growth from Search highlights the enduring relevance and profitability of this business segment within the rapidly evolving digital landscape.
Alphabet’s net income surged to $34.97 billion, or $2.87 per share, compared to $26.3 billion, or $2.12 per share, in the same quarter of the previous year. However, it’s worth noting that the company’s bottom line was impacted by a $3.45 billion antitrust fine levied by European Union regulators, pointing to the regulatory challenges faced by large tech companies.
YouTube’s advertising revenue reached $10.26 billion, exceeding Wall Street’s projections. Overall, Alphabet’s advertising revenue totaled $74.18 billion, a significant increase from the $65.85 billion in the prior year, demonstrating a strong advertising market.
Other Bets, which encompass Alphabet’s more experimental ventures like Verily (life sciences) and Waymo (autonomous driving), generated $344 million in revenue during the quarter, a decrease from the $388 million reported during the same quarter last year. While these “moonshot” projects show promise, they continue to operate at a loss. For the current quarter, Alphabet reported a loss of $1.42 billion on other bets, compared to a loss of $1.12 billion for the same period the previous year. This indicates that further investment and strategic recalibration may be needed before these ventures achieve profitability.
As a whole, Alphabet’s stock has appreciated by 45% year-to-date, reflecting the continuing confidence of investors in the company’s strategic direction and its diverse portfolio of businesses.
Alphabet one-day stock chart.
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