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Alphabet stock falls about 13% as search growth slows to 12%

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Alphabet stock falls about 13% as search growth slows to 12%

Alphabet reported an across-the-board earnings miss for the third quarter, and CNBC singles out search as the segment that stood out. Revenue in the search and other segment grew 12% from a year earlier to roughly $63 billion, but came in below estimates for the second straight quarter. At the same time, Google said search query growth on the platform was the strongest in five years. That gap between usage and revenue is, in CNBC's framing, getting harder to dismiss as more people turn to AI bots and agents, including tools Google itself offers.

Search revenue growth has been sliding: 19% in the first quarter, 17% in the second, 12% in the third. Alphabet executives said foreign exchange was the biggest factor behind the deceleration and that the currency impact would be even greater in the fourth quarter.

The stock fell about 13% on Thursday, the steepest drop on record, reflecting the weaker-than-expected results and negative free cash flow of $9 billion for the quarter, three times the estimated deficit. In the second quarter free cash flow had gone negative for the first time in Alphabet's history as a public company, at $5.9 billion.

Google's pitch is that AI helps its ads business. Chief Business Officer Philipp Schindler said on the earnings call: "We continue to accelerate the deployment of Gemini models across our entire ads infrastructure to boost performance." The company made what Schindler called its "biggest update to product listing ads in a decade" in the quarter, and Gemini models helped advertisers generate more than 1.5 billion campaign assets, up more than sevenfold from a year earlier. CNBC's verdict: none of that addresses the slowdown in search revenue growth.

Analysts reacted with worry about cannibalization. UBS analysts wrote that the results are "going to bring Search cannibalization fears right back to the forefront." Mizuho analyst Jordan Klein said the numbers are an issue for search and YouTube. Gene Munster of Deepwater Asset Management told CNBC's Fast Money that if "personalized bots" take off, "that will become for a lot of people the starting point of commerce, which impacts where Google is." Gil Luria of D.A. Davidson said the fears of 2023 to 2025 about the AI effect appear to be finally showing up in Google's business, but added that he would not rush to conclusions based on one quarter.

The bright spot was Google Cloud. Its revenue more than doubled in the quarter to nearly $31 billion, and its backlog reached roughly $560 billion. Management expects just more than half of that backlog to be recognized over the next 24 months. CNBC notes that Microsoft, which also reported after the bell on Wednesday, said Azure revenue rose 48% from a year earlier to $33.2 billion.

Cloud demand is a reason to keep spending. Alphabet maintained its full-year 2026 capital expenditure forecast of $195 billion to $205 billion and said spending will increase significantly in 2027. Part of it goes to tensor processing units (TPUs), which compete with Nvidia's GPUs; Alphabet began selling them to outside customers in the second quarter. CFO Anat Ashkenazi explained the cash drain: "You see cash going out and we're building up the inventory base. As we start delivering and billing customers for these TPU systems, then you see cash coming in."

Key facts

  • Search and other revenue grew 12% to roughly $63 billion in Q3, below estimates for the second straight quarter; growth was 19% in Q1 and 17% in Q2.
  • Alphabet stock fell about 13% on Thursday, the steepest drop on record per CNBC, with Q3 free cash flow at negative $9 billion, three times the estimated deficit.
  • Google said search query growth was the strongest in five years; executives blamed foreign exchange as the biggest factor in the revenue slowdown.
  • Google Cloud revenue more than doubled to nearly $31 billion, with a backlog of roughly $560 billion.
  • Alphabet kept its 2026 capex forecast at $195 billion to $205 billion and said spending will increase significantly in 2027.

Why it matters

Search is Alphabet's flagship business, and this quarter put a number on a long-running worry: usage can rise while revenue growth cools. Query growth was the strongest in five years, yet search revenue growth fell from 19% to 17% to 12% across three quarters. Since the early days of ChatGPT, analysts have predicted that AI would eclipse traditional search and force Google to find new ways to make money. CNBC says early signs of a shift are now appearing, though the article does not say AI caused the slowdown.

Who it affects

Alphabet shareholders took the hit directly, with the stock down about 13% in a day. Advertisers are affected by the AI changes to ads: Gemini helped them generate more than 1.5 billion campaign assets in the quarter. Google Cloud customers are the source of the $560 billion backlog, and TPU buyers are a new group, since Alphabet started selling the chips externally in Q2. Rivals named in the piece are Anthropic and OpenAI on models, Amazon Web Services and Microsoft Azure in cloud, and Nvidia in chips.

How to use it

For a reader tracking the company, the items to watch follow from the article: whether currency effects deepen in the fourth quarter as executives said, whether search revenue growth stabilises after 12%, how the large 2026 capex and the higher 2027 spending convert into revenue as TPU systems are delivered and billed, and how much of the cloud backlog is recognised over the next 24 months.

How solid is it

The facts come from a CNBC report quoting Alphabet's earnings call, analyst notes and an interview on CNBC's Fast Money. The figures are the company's and CNBC's own. The article gives no market-capitalisation figure, so a specific dollar amount of lost market value is not stated there. It also gives no size for the search miss versus estimates, no overall revenue or profit figures, and no quantification of the foreign-exchange effect. The stock move is dated only as Thursday.

Risks and caveats

Executives point to foreign exchange as the main reason for the search slowdown, while the AI-cannibalization story is analyst concern, not a company finding. Luria cautioned against rushing to conclusions from one quarter. Cash is the other pressure: free cash flow was negative $5.9 billion in Q2 and negative $9 billion in Q3, spending is set to rise significantly in 2027, and the return depends on delivering and billing the systems customers have already contracted for.

“This elevates the fear around AI and agentic taking share from Search and YT and hurting their AI monetization narrative”

— Jordan Klein, Mizuho analyst, in a note after the earnings report