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AITBPNOctober 29, 2026 at 08:20 PM2:06:13

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TL;DR

Alphabet shares plunged after a rare earnings miss, as surging Google Cloud growth and heavy AI investment were overshadowed by weaker-than-expected profits and concerns about how AI Search will be monetized.

KEY POINTS

Alphabet shares tumble after earnings miss

Alphabet stock fell about 12.5% after reporting quarterly revenue of $127.6 billion, below the $128 billion consensus. Earnings per share came in at $2.12 versus expectations of roughly $3.01, a miss of about 30%. Even excluding an $8.7 billion loss tied to equity investments including SpaceX, adjusted EPS would have been about $2.67, still short of forecasts.

Google Cloud emerges as a profit engine

Google Cloud was one of the standout businesses in the quarter. Revenue doubled to $30.7 billion, operating profit tripled to $11.1 billion, and operating margin reached 36.2%. The unit’s contract backlog rose to $561 billion, with about 55% expected to be recognized within two years, underscoring how central cloud has become to Alphabet’s growth story.

Search growth slows as AI changes the product

Search advertising growth decelerated to 12%, down from 17% in the prior quarter. Usage of AI Mode is increasing, but these responses currently monetize less effectively than traditional search pages packed with paid links and sponsored placements. That dynamic has revived a long-running bear case on Google: user behavior remains sticky, but the company faces a harder path to extracting the same ad yield from conversational results.

AI spending accelerates sharply

Alphabet guided to $195 billion to $205 billion in capital expenditures for 2026, roughly $200 billion, and signaled another significant increase in 2027. Quarterly capex reached $51.4 billion, showing the company is already spending at that annualized pace. The outlay reflects the intensifying race to build data centers, chips and infrastructure for frontier AI systems.

Gemini passes 1 billion monthly users

Gemini surpassed 1 billion monthly active users, while the company said its API is processing 32 billion tokens per minute, up 40% quarter over quarter. The latest model release, Gemini 4 Carbon, was positioned as proof that Google remains competitive at the frontier. The strategic logic is not only external sales but also internal use across Search, YouTube and other products, lowering dependence on outside model providers.

Microsoft and Google both hit real-world buildout limits

Infrastructure demand remains strong across the sector, but deployment is being slowed by physical bottlenecks. Microsoft reported capex of $38.37 billion, below estimates of $45.9 billion, while Google’s own spending also came in under some expectations. Delays tied to power, permitting and data-center installation are becoming a defining constraint in the AI buildout, even as demand for compute remains intense.

Nvidia faces new scrutiny over alleged China espionage

A report said U.S. officials concluded that Alice Wong, an executive at Singapore-based Mega Speed, was acting as a Chinese intelligence asset and had developed a close relationship with Nvidia chief Jensen Huang. The concern was that Beijing could gain insight into advanced chip flows and sanctions enforcement. The case highlights the geopolitical stakes around AI hardware and the persistent incentives to route restricted Nvidia chips through third countries such as Malaysia.

Walmart expands commerce-based TV advertising

Walmart launched Walmart Audiences, a product designed to let advertisers target streaming TV viewers using purchase and intent signals from its retail platform. The pitch is that brands can now apply commerce data to connected TV in a way that makes the channel more measurable and performance-driven. The move reflects a broader effort by retailers and ad-tech companies to turn television into a more direct-response medium for digital brands.

CONCLUSION

The quarter showed Alphabet becoming more diversified and more deeply embedded in the AI economy, but also more exposed to the costs and business-model disruption that AI is bringing. Investors are now weighing whether explosive cloud and infrastructure momentum can offset pressure on the highly profitable search franchise.

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