Alphabet, the parent company of Google, reported third-quarter revenue of $127.6 billion, representing a 25 percent increase from the previous year but falling short of analysts’ expectations of $128.2 billion. The results revealed a decline in net income and highlighted significant costs associated with the company’s expanding investment in artificial intelligence (AI) and cloud infrastructure.

Alphabet’s earnings per share stood at $2.12, with adjusted earnings of approximately $2.67 per share after excluding an $8.66 billion loss on equity investments. This adjusted figure was below the consensus forecast of $3.02 per share. The company also recorded negative free cash flow of $9.07 billion for the quarter, marking its second consecutive quarterly deficit, driven by a sharp rise in capital expenditures. Alphabet’s spending on infrastructure, including data centers and AI computing capacity, more than doubled year-on-year to $51.36 billion, narrowly missing analyst projections but underscoring the scale of its investment efforts.

Advertising revenue, which remains a core component of Alphabet’s business, lagged behind expectations, generating around $82 billion versus predicted higher figures. Google Search advertising revenue grew 12 percent to $63.35 billion, though slightly below the forecast of $64.96 billion. This shortfall raised questions about how Alphabet’s integration of AI-powered search features might be impacting traditional ad revenues, although the company has not directly linked the changes to the current results. Operating income reached $40.58 billion, below the $43.19 billion anticipated by analysts.

Alphabet’s cloud division showed robust growth, with revenue more than doubling to $30.71 billion, surpassing the $28.7 billion analysts had projected. This performance reflects increasing demand for cloud computing and AI-related services, areas in which Alphabet competes closely with Microsoft and Amazon. However, the strong cloud results were insufficient to offset the softer advertising revenue and broader earnings miss.

In contrast, Microsoft reported better-than-expected results for its fiscal first quarter ending in September. The company’s revenue rose 19 percent to $92.3 billion, beating analysts’ estimates of $90.7 billion. Adjusted earnings per share reached $4.89, exceeding the forecast of $4.73. Microsoft’s cloud revenue, including its Azure platform, increased 48 percent to $33.17 billion, outperforming expectations of $32.3 billion. Total cloud revenue climbed 30 percent to $63.9 billion, supported by steady demand for cloud infrastructure and AI services.

Microsoft’s capital expenditure grew 30 percent year-on-year to $45.2 billion, below forecasts, reflecting ongoing investments in AI capacity but with a more moderate pace than Alphabet. Despite a 27 percent decline in free cash flow to $18.63 billion, Microsoft maintained positive cash flow, contrasting with Alphabet’s recent deficits.

Both companies are engaging in significant spending to expand their AI and cloud infrastructures amid a competitive industry backdrop. Industry analysts note that Alphabet, Microsoft, Amazon, and Meta together are projected to invest over $700 billion in 2026 in data centers, chips, and networking capacity, demonstrating the sector’s rapid growth and evolving technology demands.