Alphabet’s Google Cloud revenue doubles to $31 billion as cash flow stays deep red

Alphabet reported third-quarter revenue of $127.6 billion, up 25% from $102.3 billion a year earlier, roughly in line with the $127.9 billion analysts were expecting, according to consensus estimates from S&P Global Visible Alpha. Earnings tumbled to $2.12 a share from $2.87. The drop is due to an $8.7 billion paper loss on Alphabet’s equity investments, which trimmed its earnings by 55 cents per share. Meanwhile, operating income rose 30% from a year ago, but dipped slightly to $40.6 billion compared to $40.8 billion last quarter.

In after-hours trading Wednesday, Alphabet’s stock dipped as low as 8%. 

“Cloud significantly accelerated with revenues growing 48%, now on an annual run rate of over $70 billion,” said Alphabet CEO Sundar Pichai during a call with analysts Wednesday. He noted that Alphabet’s annual revenues exceeded $400 billion for the very first time. 

As for capital spending, investors are eagerly awaiting the figure among all the hyperscalers as the sizzling race for AI compute has pressed companies to splash out $2 trillion in two years. Alphabet reported that capex was $51.4 billion in the third quarter, compared to $24 billion a year ago.

The third quarter results are Alphabet’s first since the tech giant announced it raised $84.8 billion in equity in June, including $10 billion from Berkshire Hathaway, to fund an AI buildout. The funding has swung Alphabet’s free cash flow into negative territory, clocking in at negative $9.1 billion, compared to negative $5.9 billion in the second quarter.

Melissa Otto, global head of Visible Alpha Research at S&P Global, wrote in a note that investors have worried that Google Cloud’s profit margin had peaked last quarter but it widened to 36.2%.