Alphabet Surpasses Expectations with Strong Q3 Earnings and AI-Driven Growth
Alphabet Inc., the parent company of Google, reported impressive third-quarter results that exceeded Wall Street’s expectations, driven by robust growth in its cloud business and significant advancements in AI technology.
**Q3 Financial Highlights**
For the quarter, Alphabet posted earnings per share (EPS) of $2.87, well above the consensus estimate of $2.26. Revenue reached $102.3 billion, surpassing analyst forecasts of $99.9 billion and representing a 16% increase compared to the same period last year. Following the earnings announcement, Alphabet’s stock jumped 6% in after-hours trading.
**Google Cloud Powering Growth**
Google Cloud continues to be a major growth engine for Alphabet, with revenue climbing 34% year-over-year to $15.2 billion, beating the expected $14.8 billion. The segment’s backlog of future revenue from contracted customers now stands at an impressive $155 billion.
CEO Sundar Pichai highlighted the cloud business’s momentum, revealing that Alphabet signed more deals worth over $1 billion through Q3 than in the previous two years combined. This surge is largely driven by artificial intelligence (AI), which generated “billions of dollars” in revenue during the quarter.
Notable recent contracts include OpenAI’s addition of Google to its cloud infrastructure providers in July, Meta’s reported $10 billion deal signed in late August, and Anthropic’s agreement to use up to one million Google custom AI chips (TPUs) after the quarter ended.
**Increased Capital Expenditure for AI Infrastructure**
Alphabet raised its 2025 capital expenditure guidance from $85 billion to $92 billion. CFO Anat Ashkenazi explained that the increased spending focuses on AI infrastructure investment, backed by strong customer demand that currently exceeds supply.
While operational cash flow topped $150 billion over the last 12 months, the rapid pace of capital spending has kept free cash flow flat for the first nine months of 2025 compared to last year. To support its investments, Alphabet issued $12.5 billion in bonds in May but still maintains solid financial flexibility with $98 billion in cash and short-term investments and little debt.
**Operating Margins and Business Performance**
The company reported an operating margin of 30.5% for Q3, slightly below analyst estimates and down from 32.3% last year. However, this figure includes a $3.5 billion fine imposed by the European Commission. Excluding the fine, the operating margin would have been a healthier 33.9%.
Google Cloud’s operating profit margin improved significantly to 24%, up from 17% a year ago, a critical metric for investors monitoring the returns on the company’s substantial cloud investments.
Alphabet’s legacy advertising business remains the backbone of revenue, contributing about 85% of total sales. Search revenue hit $56.6 billion, beating the $55 billion forecast, while YouTube and other core ad platforms continued their double-digit sales growth.
Android-related businesses also showed strong momentum, though the third-party ad network segment remains a weakness with declining sales. This part of the business faces potential divestiture amid the ongoing U.S. v. Google antitrust litigation.
**Outlook**
With solid execution across its core businesses and accelerating AI-driven growth, Alphabet’s strong Q3 performance suggests the company is well-positioned to maintain its competitive edge as it invests heavily in cloud and AI infrastructure. Investors will be closely watching how these strategic investments pay off in the coming quarters.
https://coincentral.com/alphabet-googl-stock-climbs-6-as-q3-earnings-beat-wall-street-estimates/
