Alphabet handed Wall Street a reality check Wednesday, reporting that its profits collapsed even as revenue climbed, as Google's parent company accelerates a historic spending spree on artificial intelligence that is starting to rattle investors.

The company posted third-quarter revenue of $127.6 billion, up 25% from $102.3 billion a year earlier and roughly in line with Wall Street's $128 billion target. But earnings per share came in at $2.12, badly missing the $3.01 analysts expected, and shares plunged nearly 10% in after-hours trading, erasing tens of billions in market value within minutes of the report landing.

The culprit was capital spending. Alphabet poured $51.4 billion into data centers and AI chips in the July-September quarter alone — and for the first time in years, that spending tipped the company into negative free cash flow, at negative $9.1 billion, a swing driven by the capital splurge, a buildup of its in-house AI chip inventory, and a $5.2 billion payment tied to a 2018 European Commission antitrust fine.

The AI arms race shows no sign of slowing

Google Cloud was the bright spot, with revenue more than doubling to $30.7 billion from $15.2 billion a year ago — growth CEO Sundar Pichai said topped 103%. YouTube advertising climbed to $11.2 billion. Pichai told investors Alphabet is "now on a half-trillion dollar revenue run rate," pointing to surging demand for the company's custom AI chips and saying the newest Gemini models are "now leading at the frontier."

"WE'RE NOW ON A HALF-TRILLION DOLLAR REVENUE RUN RATE"

Pichai said Alphabet's AI systems are now processing nearly 32 billion tokens per minute — more than four times the pace of a year ago — and that the Gemini app has crossed 1 billion users, which the company calls the fastest-growing product in Google's history. YouTube Music and Premium, meanwhile, topped 150 million subscribers worldwide.

None of that was enough to calm nerves over spending. Alphabet left its full-year capital expenditure guidance unchanged at $195 billion to $205 billion, but warned that spending would climb significantly again in 2027 as the buildout of AI infrastructure continues. Shares, which had closed the regular session up 1.6% at $321.89 in anticipation of the report, sank to roughly $290 once the numbers came out.

What's next

Alphabet's report capped a week of blockbuster — and in some cases unnerving — earnings from the handful of companies driving the AI buildout, as investors increasingly ask how long Big Tech can keep spending at this pace before it shows up in profits. Meta posted its own record quarter the week prior, underscoring just how much of Silicon Valley's growth story now rests on the AI infrastructure race. For Alphabet, the test now shifts to whether Cloud's blistering growth and the Gemini app's billion-user milestone can convince investors the spending will eventually pay for itself.