$GOOGL · Schwab Network · 2026-10-28

Well, I think this explains why people like Dan Ives believe this is the most important report of the week for the technology sector, because clearly, as he was saying, Azure's superiority with its backlog growth paves the way for Alphabet, which is interesting because it comes just before their report, and also for Amazon, because it confirms the demand side in the capital spending debate ahead of November.

But I want to move to Alphabet because we are seeing a sharp downward move based on these numbers. We were down slightly more than 7% when the results first came in about 45 seconds ago while Sam was speaking.

So let's get into the details. Earnings per share came in at $2.12, a significant drop from estimates that ranged between $2.94 and $3.01 depending on the scale used. It is also a decrease from what it was a year ago. The figure was $2.87 a year ago.

Revenues rose 25% year-on-year to $127.58 billion. This is roughly in line with expectations, and perhaps a slight decrease from the estimate that was looking at $127.93 billion.

Google Cloud's revenue here exceeded expectations by $30.71 billion, compared to estimates of $29.1 billion.

Services revenue came in at $96.3 billion, falling short of expectations. We were looking at $98.4 billion. So there is a deficit of $2 billion here.

Google's advertising revenue also came in below expectations at $82.01 billion. The forecast was $83.57 billion. Google's search revenue and other revenue totaled $63.35 billion.

This is also a deficiency here. 64.85 is the figure the market was expecting.

YouTube's advertising revenue also came in slightly below expectations. 11.21 billion. The estimates were 11.43. Operating income came in below expectations here as well. Wow, I didn't expect to say that so many times.

$40.58 billion. The estimates were 43.16. So it's a fairly large decline, close to $3 billion. Operating margins at 32%.

Capital expenditures came in lower than expected. $51.36 billion versus estimates of $55.78 billion.

The CEO says that AI investments are driving search query growth, at the highest annual rate in five years, with Alphabet now reaching half a trillion dollars in revenue.

However, there are many discrepancies between these figures and what the market expected versus the actual figures. Not too big a rollbacks on most metrics here, but Jeff, did you expect there to be so many failures in the Alphabet report?

No, not at all. This is particularly bad because the stock's fundamentals were strong prior to this report, but the stock didn't really reflect that. I think investors, looking back, have seen stocks fall by more than 5% over the past month.

If you look at the previous quarter, you see an increase in revenue, and you see cloud revenue growing by more than 80%.

To see what we are seeing today, I mentioned the decline in cloud revenues. I mean, I wanted to determine whether this is just a normalization of this exceptional growth or whether we are seeing a real slowdown in demand.

However, Google's search revenue, also falling short of expectations, may raise some concerns about monetization and whether we are seeing changes in how consumers search. This could be the beginning of some pressure on one of Alphabet's most important profit engines.

And I'm just looking at "Gemini," which is also a big part of this conversation here. They now have one billion users. They have surpassed the one billion user mark. They also say they are now processing around 32 billion tokens per minute with respect to the model's APIs.

They are launching "Gemini for Carbon" with what they call a quantum leap in cybersecurity. All of these are software, proxy, and cybersecurity tasks that have been announced here with this new standard. It contains "Cloud Ops 5.5".

Sam, Gemini is an optimistic part of Google's story, but is a new version of Gemini enough to cover up any of these failures?

Yes, that's a big question. I mean, Google certainly received a lot of praise for what it did with Gemini. That certainly seemed to be the case over the summer, but as we were talking to Caleb, I mean things have declined since then and you obviously don't see a positive reaction.

So, I think you'll get the answer to your question there, Molly, from the market.

I mean, there were high expectations before that capital expenditures would be justified by revenues and profit margins. Oh, there was a lot of talk about the research. Oh, certainly if that's safe given all the AI agents that are now widespread.

I mean, as Dan Ives said, and I quote him again because he's clearly one of the tech optimists here on Wall Street, before this: "The cloud is the engine. Capital expenditures are the consequences.

Research is the debate." The fact that we achieved these results with what we see in the cloud, which was expected to continue driving those revenues, but the lower capital expenditures say a lot about the spending plans here.

Therefore, the failure in the research sector that perhaps supports this aspect of the debate right now is, umm, certainly interesting.

Hmm, you wonder, you know, to what extent they can change things on the call. Yes, right now we are down 7.3 percent for Alphabet.