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Our next steps for Alphabet stock after earnings disappoint at nearly every turn Published Wed, Oct 28 2026 9:10 PM EDT Zev Fima @zevfima Alphabet whiffed. The Club stock sank on Wednesday evening after the Google parent delivered a terrible quarter with little to like beyond the cloud. Revenue in Alphabet's second quarter did manage to increase nearly 25% year over year to $127.6 billion. But it still came up short of the $128.2 billion expected, according to the LSEG-compiled consensus estimate. Adjusted earnings per share (EPS) dropped 7% to $2.67, below the $3.02 expected. On a GAAP basis, which included investment losses, EPS was $2.12. GAAP stands for generally accepted accounting principles. Operating income of $40.6 billion missed, though it increased 30% from the year-ago period. Operating margin expanded 1.3 percentage points to 31.8%. But that came up short, too. GOOGL YTD mountain Alphabet YTD Shares plunged nearly 10% in after-hours trading. Alphabet hasn't reported a quarterly top- and bottom-line miss in almost four years — not to mention it delivered another negative free cash flow print and signaled a big increase in AI spending next year. Bottom line Let's start with the bright spots: Cloud and AI. Google Cloud revenue doubled year-over-year to $30.71 billion in Q3, soundly exceeding expectations. Segment operating income more than tripled to $11.12 billion, also crushing estimates. Cloud CEO Thomas Kurian said the unit now has 18 product lines, each generating more than $1 billion in revenue. The backlog exited the quarter at $561 billion, up from $514 billion in the prior quarter. A little over 55% of that, or about $308 billion, is expected to be realized over the next 24 months. As for Alphabet's AI advancements, the company said the Gemini app now has over 1 billion monthly active users, making it the fastest-growing product in company history. Across its first-party models, Alphabet has seen token-per-minute usage increase to about 32 billion. That represents growth of about 40% sequentially and four times the year-ago period. A token is the basic unit of data for AI computing. Alphabet CEO Sundar Pichai said on the call, "With Gemini 4 Argon and now Carbon, which we announced today, we are excited to be leading at the frontier." While those numbers are supportive of the broader AI trade, they were certainly not enough for us to argue that investors should overlook the misses pretty much everywhere else. Expect the Search miss to reignite the debate over whether artificial intelligence is cannibalizing Alphabet's cash cow. Segment revenue increased 12% year-over-year to $63.35 billion, and management said that search queries saw their fastest year-over-year growth rate in 5 years. However, the Search revenue growth rate decelerated for the second straight quarter. The majority of Search revenue comes from advertising. Alphabet's total ad revenue, which includes YouTube ads and Google Network, rose 10.5% in Q3. That paled in comparison to the rate of growth at Alphabet's primary ad competitor Meta Platforms, which saw ad revenue up 26% on the quarter. Alphabet management blamed foreign exchange dynamics and a normalization of ad spend after the World Cu…