Alphabet shares GOOGL plunged 13% on Thursday’s open after the Google parent reported weaker-than-expected third-quarter revenue and earnings, intensifying investor concerns that artificial intelligence could undermine its core search advertising business.
If the losses hold through the regular session, the decline would mark Alphabet’s steepest one-day drop since March 2020, when the stock fell 11.6%.
It would also represent the company’s worst post-earnings reaction since going public in 2004.
Alphabet reported total third-quarter revenue of $127.6 billion, below analysts’ estimates of $128.2 billion, according to LSEG data.
Earnings per share came in at $2.12, compared with analysts’ forecast of $3.02.
Search advertising, Alphabet’s largest revenue source, grew 12% to $63.35 billion in the September quarter, but fell short of analyst expectations.
The company also reported negative free cash flow of $9.07 billion, substantially worse than the $2.70 billion analysts had expected.
Although Google Cloud revenue more than doubled at $30.71 billion, the strong performance failed to reassure investors amid concerns over the cost of Alphabet’s artificial intelligence infrastructure expansion and slowing growth in its dominant search business.
The results have renewed questions about whether AI-powered services from competitors such as OpenAI’s ChatGPT and Meta’s Muse agent could disrupt the traditional search model.
BNP Paribas analyst Nick Jones wrote in a Wednesday note that the results likely revived fears that AI competitors were chipping away at Google’s search business.
Investors are also concerned that agentic shopping experiences could threaten advertising revenue if AI agents increasingly handle web browsing and purchasing decisions.
Slowing search growth raises monetisation concerns
Alphabet’s search business remains central to investor concerns.
Search growth slowed to 12% year-on-year in the third quarter, down from 17% in the second quarter.
Bernstein analyst Mark Shmulik described the initial read on Alphabet’s results as offering far more negatives than positives.
He called the deceleration in search growth “material” and questioned why an increase in search queries was not translating into revenue growth to the same extent as in previous quarters.
Alphabet said currency fluctuations affected search revenue during the quarter.
The company also acknowledged that queries conducted through AI Mode were, on average, three times longer than traditional searches, but generated lower monetisation for the time being.
The challenge for Alphabet is to demonstrate that AI-powered search can generate sufficient advertising revenue to offset potential changes in how users discover information and shop online.
Raymond James lowered its price target on Alphabet to $350 from $400 while maintaining a Strong Buy rating.
The firm said the company delivered mixed results and failed to address concerns surrounding search.
It noted that AI Mode’s lower monetisation rate puts pressure on Alphabet to show that potential structural gaps in advertising load compared with traditional “10 blue links” can be offset by improved conversion rates resulting from richer context and a broader query universe.
Raymond James also highlighted the company’s spending plans, maintaining its capital expenditure outlook, including significant growth in 2027.
The firm estimates capital expenditure of $350 billion, compared with the broader market’s estimate of $320 billion.
It lowered its price target while seeking greater visibility into whether AI Mode and Gemini can become incremental growth drivers.
The firm also flagged risks from agentic workflows that could significantly change shopping and browsing behaviour.
Analysts cut price targets but retain bullish ratings
Several other analysts lowered their price targets following the results, although they maintained positive views on Alphabet’s longer-term prospects.
Susquehanna cut its price target on Alphabet to $400 from $460 while maintaining a Positive rating.
The firm raised its 2026 net revenue estimate by 2%, left GAAP operating income broadly unchanged and reduced its GAAP earnings-per-share estimate by 4%.
For 2027, Susquehanna increased its revenue estimate by 7%, its GAAP operating income estimate by 3% and its GAAP earnings-per-share forecast by 2%.
Cantor Fitzgerald analyst Deepak Mathivanan lowered his price target to $350 from $420 while retaining an Overweight rating.
He pointed to the earnings miss, operating income that came in 7% below estimates, and slowing search growth, which had driven a 10% decline in after-hours trading.
However, the analyst cited cloud growth above 100%, record search queries, strong demand for tensor processing units and continued Gemini innovation as supporting Alphabet’s AI positioning and long-term upside.
The firm recommended buying shares on weakness.
Rosenblatt analyst Barton Crockett reduced his price target to $380 from $410 but maintained a Buy rating.
The firm said strong cloud performance was overshadowed by disappointing search results.
Rosenblatt expects Google Cloud revenue to surpass the combined revenue of Search and YouTube by 2028.
It believes Alphabet’s value is gradually shifting from advertising towards cloud computing, although investors will need time to assess near-term trends and the durability of its search business.
Cloud growth remains a long-term opportunity
JPMorgan analyst Doug Anmuth retained an Overweight rating and a $375 price target, arguing that the sharp share-price reaction highlighted the limited tolerance investors have for disappointing results from companies spending heavily on AI infrastructure.
“Alphabet’s 3Q results & the stock’s sharp move lower show us the margin for error when a hyperscaler spending hundreds of billions on the AI infrastructure buildout and flipping to negative FCF posts disappointing results in the core… We’re sticking with Overweight, as we believe Google’s Search headwinds are more navigable than permanently structural, and Google Cloud becomes an even more critical part of the business, driving overall Alphabet revenue growth of ~30% in both 2027 & 2028.”
The outlook highlights the central tension facing Alphabet.
Its AI investments and rapidly expanding cloud business could support substantial future growth, but investors want evidence that these investments will generate adequate returns without undermining the advertising business that has historically financed the company’s expansion.
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