Google Cloud Doubled. Why Alphabet Stock Is 31% Below Its High

Google Cloud more than doubled its revenue in a single year. Sales hit $30.7 billion in the September quarter, up 103%, and the unit’s profit tripled. By almost any measure it was the best quarter the cloud business has ever had.

Alphabet stock fell more than 10% the next day.

GOOGL closed at $280.03 on November 3. That’s about 31% below its 52 week high of $408.61, and less than $10 above its low for the year. Below are the numbers from the October 28 report, the spending that worried investors, what the stock costs now and what analysts expect.

Alphabet’s September quarter

Alphabet revenue by business, Q3 2026 vs. Q3 2025

According to the company’s earnings release, revenue rose 25% to $127.6 billion. Chief executive Sundar Pichai said Alphabet is “now on a half-trillion dollar revenue run rate.”

Most of the growth came from Cloud. Search and other ads brought in $63.4 billion, up 12%, which is solid for a business that size but short of the roughly $65 billion analysts had penciled in. YouTube ads grew 9% to $11.2 billion. Subscriptions, platforms and devices, which includes YouTube Premium, Google One and Pixel phones, grew 11% to $14.3 billion. The Google Network, ads on other people’s sites, was flat.

Operating income was $40.6 billion, up 30%, for a margin of about 32%.

The Cloud number

Google Cloud’s operating income was $11.1 billion, compared with $3.6 billion a year earlier. The margin went from about 24% to 36%.

Part of the jump came from selling TPUs, the AI chips Google designs itself, as complete systems to outside customers. That puts Alphabet in direct competition with Nvidia for some of the biggest AI buyers, something that wasn’t true two years ago.

Analysts had expected about $28.7 billion of Cloud revenue, so it was a clear beat. But expectations were already high. As Jefferies analyst Brent Thill put it to CNBC, “The Street wanted 100%, so it didn’t beat by much.”

The Gemini app passed 1 billion users, and Pichai said AI features helped bring the fastest growth in search queries in five years.

Why earnings fell

Net income dropped 25% to $26.2 billion, and earnings per share fell to $2.12 from $2.87.

Most of that wasn’t the core business. Alphabet holds stakes in private companies, including SpaceX and Anthropic, and marks them to market every quarter. This time it booked an $8.7 billion loss on those holdings. A year earlier it had booked a $10.7 billion gain. The swing alone cut 55 cents off this quarter’s per share figure.

Take that out and earnings were $2.67 a share. That still missed the $3.02 analysts expected, the first time in almost four years that Alphabet came in under estimates on both revenue and profit.

The spending problem

Alphabet cash flow, capital spending and buybacks, Q3 2026 vs. Q3 2025

The bigger issue is cash. Alphabet spent $51.4 billion on capital expenditures in the quarter, more than double the $24.0 billion a year earlier. Almost all of it goes to data centers, servers and chips.

That’s more than Microsoft spent in the same three months, and about 23 times what Apple spent.

Operating cash flow was $42.3 billion. Subtract the spending and free cash flow came out to negative $9.1 billion. A company that used to throw off more cash than it knew what to do with burned through it in a quarter.

Other lines show the same thing. Alphabet bought back no stock in the quarter, after spending $11.5 billion on buybacks a year earlier. Long term debt has risen to about $125 billion from $21.6 billion. And Alphabet now pays dividends on a new issue of preferred stock, a way of raising cash that big tech companies rarely use.

The company kept its 2026 capital spending forecast at $195 billion to $205 billion. Chief financial officer Anat Ashkenazi said “we continue to expect our capex to increase significantly in 2027.” CNBC reported that spending is expected to top $300 billion next year.

Is Alphabet stock cheap at $280?

At the November 3 close, Alphabet was worth about $3.44 trillion. The trailing price to earnings ratio is about 14.6, but that number is misleading. It’s based on $19.15 of earnings per share over the last twelve months, which includes large gains on the investment stakes in earlier quarters.

The forward ratio, about 20, is a better guide. That’s below Microsoft at about 25 and well below Apple at about 35, even though Alphabet’s revenue is growing faster than either.

In other words, the market is pricing Alphabet like a company whose spending might not pay off. If Cloud keeps growing near 100% and margins hold, today’s price could look low in hindsight. If the 2027 budget runs past $300 billion and revenue growth slows, the cash drain gets worse before it gets better.

The dividend is $0.22 a share every quarter, or $0.88 a year, a yield of about 0.31%. The next payment is December 14.

What analysts expect from GOOGL

The average 12 month price target from 58 analysts tracked by StockAnalysis is $400.37, about 43% above the November 3 close. The consensus rating is still a strong buy.

Several firms trimmed their targets after the report but kept their ratings. JPMorgan cut its target to $375 from $425 and stayed at overweight. Wells Fargo went to $365 from $371, also overweight.

A 43% gap between the price and the average target is unusually wide for a company this size. It usually means one of two things. Either the stock overshot on the way down, or the targets haven’t caught up with a lower outlook yet. The next few weeks of analyst updates should show which.

What could move Alphabet from here

The 2027 capital spending number is the big one. Alphabet said it will give details on the January call. A figure well above $300 billion would likely pressure the stock again. Anything closer to that line, paired with a plan to bring free cash flow back above zero, would help.

Search has to hold up. Growth of 12% is fine, but the miss against estimates is the first sign that AI answers might be eating into ad clicks. Investors will watch the next quarter closely.

Cloud’s pace matters too. Growth of 103% is extraordinary. Even a slowdown to 80% would be strong, but the stock is now priced on that number.

The private stakes add noise. SpaceX and Anthropic valuations can swing billions of dollars in either direction each quarter, which makes reported earnings jumpy.

The next report should come in late January or early February 2027.

Questions people ask about Alphabet stock

What’s the difference between GOOGL and GOOG?

GOOGL is Class A stock, which carries one vote per share. GOOG is Class C, with no voting rights. They trade at almost the same price and get the same dividend. For most individual investors the difference doesn’t matter.

Does Alphabet pay a dividend?

Yes, $0.22 a share every quarter. Alphabet started paying one in 2024, so it’s a newer dividend than Microsoft’s or Apple’s.

Why did Alphabet stock drop if Cloud did so well?

Investors care more right now about how much Alphabet is spending to build AI data centers than about one strong quarter. Negative free cash flow, no buybacks and a forecast for much higher spending in 2027 outweighed the Cloud beat.

Should I buy Alphabet or an index fund?

That depends on how much risk you can take with one company. Alphabet is among the largest holdings in S&P 500 and Nasdaq 100 funds, so index investors already own a sizable piece. Our guide on how much money you need to start investing covers both routes.