Alphabet's third-quarter results missed expectations. They led one analyst to downgrade the stock
Alphabet sold off following a lackluster third-quarter financial report , raising questions on Wall Street about what’s next for the tech giant as the artificial intelligence revolution continues. The Google parent posted adjusted earnings of $2.67 per share on revenue of $127.58 billion. Both numbers were below LSEG consensus estimates. It’s also the first time in nearly four years that Alphabet has recorded a top and bottom line miss. Alphabet also reported negative free cash flow of $9.07 billion for the third quarter, well below the $2.70 billion analysts had anticipated, and posted softer search revenue than expected.Full-year capital expenditure guidance remained unchanged in a range of $195 billion to $205 billion. Shares of Alphabet were last down nearly 11% in the premarket as concerns over growth in the firm’s bread-and-butter search business swirled. Investors also scrutinized the company’s outsized investments into its artificial intelligence initiatives. GOOGL 1D mountain Alphabet shares have fallen over the past day. Those worries led Citizens to downgrade Alphabet to market perform from market outperform. “While query growth reached a five-year high, monetization appears to be challenged while search faces difficult comps,” analyst Andrew Boone said in a note to clients. “While we acknowledge Google is well-prepared to offer an agentic experience, it will take execution to effectively transition monetization from AI Overviews to agents, and it expects to launch a consumer agent by year-end.” Others on the Street struck a more constructive note on the stock, though several analysts trimmed their price targets following the release. Here’s what analysts are saying: Bank of America: Buy rating The bank trimmed its price target to $380 from $430, implying 17% upside from Wednesday’s close. “We est. y/y eX-FX search growth decelerated 3pts q/q in 3Q on 2pt tougher comp. despite accelerating y/y query growth. Google indicated traffic transition to Overviews was a small headwind in the Q, and likely bigger in Intl markets where ad loads are just starting to ramp. Tougher comps continue through 2Q’27, which could make Google a 2H’27 story. However, with ads in Intl. AI Overviews launching this quarter, better AI models being deployed, and commentary that ads are performing in Overviews, we think there is potential for a growth uptick as early as 1Q.” BMO: Outperform The bank lowered its price target to $425 from $480, signaling a gain of 31%. “While Search revenue was soft, Search queries grew at the fastest YoY rate in 5 years, as GOOGL expands AI Mode globally and underscores its belief that most AI Mode searches are incremental. Importantly, token consumption of GOOGL’s models accelerated sequentially to 32B tokens processed per minute, suggesting core AI adoption remains robust.” Baird: Outperform “Some yellow flags, but probably more benign than headline reaction…We expect shares to remain in the ‘penalty box’ until there is more visibility into the upcoming personal agent launch, improved monetization of ads in AI Mode/AI Overviews, and pace of growth for [tensor processing unit] system sales.” Morgan Stanley: Overweight Morgan Stanley reiterated its $375 target, which implies a gain of 15%. “TPU sales are up-siding, but GOOGL’s multiple is tied to search innovation, product roll-out and growth durability. We look for agentic/Gen AI enabled tools being successfully shipped and adopted by GOOGL’s leading bases of users in months ahead to re-rate GOOGL higher.” UBS: Neutral The bank lowered its price target to $332 from $380, pointing to a gain of just 2.2%. “Beyond the surprising shortfall on Search and YouTube (with Search at $63.4B vs St’s $64.9B and YouTube at $11.2B vs St’s $11.4B), Google struck what was a more measured/deliberate tone around monetization of incremental AI queries, which to us suggests a lower ad revenue growth trendline than we had anticipated.” Goldman Sachs: Buy The bank’s $385 target implies 19% upside. “Investors are likely to continue to focus on: a) the forward rate of change in Search & Other revenue as core search evolves into a wider array of multi-modal canvases (including consumer agents) given an outsized amount of core operations profits (in our view) are generated from Search & Other; b) the visibility into peak capex levels (magnitude & timing) behind the AI theme & continued disclosures around normalized ROIC on current period spend and forward execution against its revenue backlog opportunity; c) Gemini’s relative competitive positioning vs. other foundational models … & d) how the company can balance allocating compute across internal product development, external client needs and a desire to be at the forefront of model performance.” Bernstein: Market perform “In the AI trade you need a clean story to pique investor interest. But it only matters if numbers track in the right direction. Google’s AI-tailwind story for search behavior (which we believe) only lands if search growth tracks in the right direction… If you’re explaining you’ve already lost. Cloud growth is impressive as TPU sales ramp, but margin compression ahead and core Google Cloud growth rate questions persist. Is Google an AI winner? Probably, but not today.” JPMorgan: Overweight “We believe Google’s Search headwinds are more navigable than permanently structural, and Google Cloud becomes an even more critical part of the business, driving overall.” Deutsche Bank: Buy “Search faces tougher comparisons in the 4Q, AI Mode is currently dilutive to monetization, and third-party bridge capacity should pressure Cloud margins as usage ramps. With all that said, we are defending the stock. This is largely due to the fact that AI is driving the strongest Search query growth in five years, including commercial queries, while Alphabet is beginning to scale advertising across these new experiences.”
