Alphabet Inc.

(NASDAQ Global Select)
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Somewhat Bearish -25

Alphabet set to report Q3 earnings after the bell as shaky AI trade looks for signs of strength

AI infrastructure Cloud expansion Earnings report AI-generated analysis

πŸ“‰ Alphabet shares have dropped approximately 7% in October amid investor concerns over the high costs of its AI infrastructure buildout.

πŸ’° The company is expected to report negative free cash flow of $2.27 billion for Q3, with analysts predicting this deficit will widen for the next four quarters.

πŸš€ Google Cloud is projected to show robust revenue growth of 90% year-over-year, reaching $28.7 billion as it captures market share from AWS and Azure.

πŸ’Έ Alphabet lifted its full-year capital expenditure forecast to between $195 billion and $205 billion, with Q3 capex expected to hit $55.2 billion.

πŸ€– Google is aggressively expanding its AI portfolio by adding Gemini models to enterprise offerings and ramping up sales of custom TPUs.

⚠️ Analysts express incremental caution regarding Alphabet's Search business due to increasing competition from new AI agents from OpenAI and Anthropic.

πŸ“… Alphabet is scheduled to report Q3 earnings after the bell on Wednesday with a conference call at 4:30 p.m. ET.

Bullish Signals
  • Google Cloud is projected to show revenue growth of 90% year-over-year, reaching $28.7 billion in the third quarter.
  • Alphabet is gaining market share in the cloud sector against major rivals Amazon Web Services and Microsoft Azure.
Risk Factors
  • Shares have dropped about 7% in October as investors grow concerned about costs tied to the artificial intelligence buildout.
  • The company reported negative free cash flow for the first time, with analysts expecting a deficit of $2.27 billion in Q3 that will widen over the next four quarters.
  • Alphabet lifted its full-year capital expenditure forecast to between $195 billion and $205 billion, significantly increasing spending on AI infrastructure.
Full Analysis
Alphabet is scheduled to report its third-quarter earnings after the bell on Wednesday, following a recent slide in its stock price where shares have dropped about 7% in October. Analysts expect revenue to increase by 25% year-over-year, marking the fastest growth rate since 2021, driven largely by aggressive expansion in artificial intelligence infrastructure. The company faces growing investor concerns regarding the high costs associated with its AI buildout, which have led to negative free cash flow for the first time. For the third quarter specifically, analysts project capex growth of 130% to $55.2 billion and expect negative free cash flow of $2.27 billion, with the deficit widening over the next four quarters as Alphabet lifts its full-year capital expenditure forecast. Despite these cost pressures, Google's cloud business remains a standout performer with projected revenue growth of 90% to $28.7 billion, allowing it to gain market share from rivals like Amazon and Microsoft. The company is aggressively deploying Gemini models and custom TPUs to compete in the enterprise AI space, though its core search business faces increasing competition from new AI agents. Analysts maintain a cautious stance on Alphabet's search division due to intensifying competition but continue to view the company as well-positioned across AI overall. Executives are set to hold a conference call with analysts at 4:30 p.m. ET to discuss these results and future guidance.