Alphabet’s Revenue Rises 25% as Profit Falls

Alphabet, the parent company of Google, said on Wednesday that it planned to substantially raise its spending on artificial intelligence infrastructure next year, as tech companies face questions about whether such enormous investments are justified.

The Silicon Valley company said it poured $51.4 billion in the third quarter into building data centers, the computing sites that power A.I., and other facets of Google’s business. Its spending estimate of $195 billion to $205 billion for the year remains unchanged, it said.

But 2027 will be a different story, with the company’s A.I. spending set to “increase significantly,” said Anat Ashkenazi, Google’s chief financial officer.

Google also reported that revenue for the three months that ended Sept. 30 rose 25 percent from a year earlier, to $127.6 billion. The growth was driven partly by its cloud business, which leases computing power to other A.I. firms and generated $30.7 billion in revenue, up a whopping 103 percent from a year earlier.

But total revenue fell slightly short of Wall Street estimates, as Google’s spending on A.I. has driven up its costs. The company’s free cash flow — the cash left after paying for expenses and investments — fell to negative $9 billion. And profit was $26.1 billion, down 25 percent from a year earlier, in part because of changes to the value of its investments in SpaceX and other companies.

Google’s shares fell more than 11 percent in after-hours trading.

The financial results and comments about spending add to the tea-leaf reading over Silicon Valley’s artificial intelligence boom, which has entered a tricky moment. Tech giants like Meta continue to spend enormous amounts to build data centers to power the technology, to the point that cash flows are going negative and the companies are selling stock and raising debt for more financing. And Anthropic, a leading A.I. lab, has plans to go public in what could be the largest-ever initial public offering.