Alphabet earnings miss reflects first real sign that AI is taking a bite out of search — SkimNews
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- Alphabet reported that search and other revenue grew 12% year over year to roughly $63 billion but fell short of estimates for the second straight quarter, with growth slowing from 19% in Q1 to 17% in Q2 and 12% in Q3.
- Google reported that search-query growth was the strongest in five years, while executives identified foreign exchange as the biggest factor behind revenue deceleration and said the currency impact would be greater in Q4.
- Alphabet shares fell about 13% Thursday, their steepest drop on record, after the earnings miss and a $9 billion quarterly free-cash-flow deficit—three times the estimate; Q2's negative $5.9 billion was its first as a public company.
- Google Cloud revenue more than doubled to nearly $31 billion, backlog reached roughly $560 billion, and management expects just over half of that backlog to be recognized over the next 24 months.
- Alphabet maintained its full-year 2026 capital-expenditure forecast of $195 billion to $205 billion and said spending would rise significantly in 2027, including on TPUs it began selling to outside customers in Q2.
- Gemini models helped advertisers generate more than 1.5 billion campaign assets, up over sevenfold from a year earlier, as Alphabet said AI improves ads' understanding of user intent and drives most product launches.
- UBS said the results would bring Search cannibalization fears back to the forefront; Mizuho linked AI and agentic competition to concern about Search and YouTube, while D.A. Davidson cautioned against drawing conclusions from one quarter.
Why it matters: Alphabet shareholders now see a $63 billion search business grow 12% yet miss estimates, alongside a 13% stock plunge. Management said foreign exchange was the biggest factor in the slowdown, while Google Cloud nearly doubled to $31 billion, making this a split quarter rather than proof that AI has broken Search.
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