Alphabet Shares Slide 10% as Quarterly Cash Flow Hits Negative $9.07 Billion

Alphabet shares dropped approximately 10% in premarket trading on Thursday. This reaction followed the company's report of negative free cash flow for the third quarter. The stock price moved lower while Microsoft shares climbed nearly 4% in the same timeframe.

The Google parent company recorded a free cash flow deficit of $9.07 billion for the quarter. Analysts had projected a smaller shortfall of $2.70 billion. Alphabet maintained its full-year capital expenditure guidance, keeping the range between $195 billion and $205 billion. If the stock closes more than 9.77% lower, it will represent the company's worst earnings reaction since its initial public offering in 2004.

Microsoft presented a different financial picture. The company reported $45.2 billion in capital expenditures and finance leases for the quarter. This figure represents a 30% increase from the previous year but came in below the $50.67 billion projected by analysts. Microsoft's free cash flow decreased by 27% to $18.63 billion, remaining positive despite the dip.

Search advertising, which serves as Alphabet's primary revenue driver, grew 12% in the September quarter to reach $63.35 billion. However, this figure missed analyst expectations. Philipp Schindler, Alphabet's chief business officer, stated that the result partly reflected lower monetization within the company's AI Mode. He noted that Alphabet is now scaling ads within its AI Overviews and AI Mode products, including in international markets.

Ben Barringer, global head of technology research at Quilter Cheviot, commented on the differing market reactions. He described Microsoft's architectural buildout as measured, which contained fewer surprises for investors. Barringer contrasted this with Alphabet, noting that the stock price fell after hours due to a messy set of results and a poorly handled earnings call.

Barringer suggested that Google faces an innovator's dilemma regarding whether to protect its core business or join the disruption. He stated that Google has lost its edge with Gemini and lags behind peers in agentic AI. The company's search business faces competition from rival AI chatbots such as OpenAI's ChatGPT and Anthropic's Claude, which may cause users to run more queries outside of Google.

Nasdaq-100 futures were down more than 1% early in the session on Thursday. Investors continue to examine technology companies' AI spending plans and the returns generated by those investments.