Alphabet earnings miss signals AI's first bite into search revenue

Alphabet's stock plunged about 10% after reporting an earnings miss, with search revenue growth slowing to 12% year-over-year at roughly $63 billion, falling short of estimates for a second straight quarter despite record query growth. The results have intensified fears that AI tools are beginning to cannibalize traditional search. Google executives attributed the search deceleration primarily to foreign exchange impacts, which they said would worsen in the fourth quarter. The company also reported negative free cash flow of $9 billion, triple the estimated deficit, as it maintains heavy spending on AI infrastructure. Meanwhile, Google Cloud revenue more than doubled to nearly $31 billion, with a backlog of roughly $560 billion. The company maintained its 2026 capital expenditure forecast of $195 billion to $205 billion and expects significantly higher spending in 2027, partly for its TPU chips now sold to external customers. Analysts noted the results may signal AI's long-predicted impact on Google's core business, though some cautioned against drawing conclusions from a single quarter.