TLDR
- Alphabet delivered Q3 EPS of $2.87, beating analyst estimates of $2.26, with revenue reaching $102.3 billion against $99.9 billion expected.
- Google Cloud revenue climbed 34% to $15.2 billion as AI generated billions in quarterly revenue and billion-dollar contracts reached record levels.
- Capital expenditure guidance increased to $92 billion for 2025, up from $85 billion, to fund AI infrastructure expansion.
- Cloud operating margins expanded to 24% from 17% year-over-year, while overall operating margin hit 33.9% excluding EU fines.
- Stock rose 6% in extended trading following the earnings announcement.
Alphabet shares climbed 6% in after-hours trading Wednesday after reporting third-quarter earnings that handily beat Wall Street projections. The results show Google’s cloud unit is becoming a powerhouse.
Earnings per share came in at $2.87, crushing the Street’s $2.26 estimate. Revenue totaled $102.3 billion, topping expectations of $99.9 billion.
The 16% year-over-year revenue growth tells only part of the story. What’s happening beneath the surface matters more.
Cloud Unit Delivers Blockbuster Quarter
Google Cloud posted revenue of $15.2 billion, up 34% from last year and above the $14.8 billion analysts predicted. The segment’s performance is turning heads across the investment community.
CEO Sundar Pichai revealed the company closed more billion-dollar deals through Q3 than during the previous two years combined. That’s the kind of acceleration investors want to see.
AI technology drove much of the growth, generating billions in revenue for the cloud division. The company’s contract backlog now stands at $155 billion.
Major contracts rolled in throughout the quarter and beyond. OpenAI added Google as a cloud infrastructure provider in July.
Meta signed what reports call a $10 billion cloud deal in late August. Anthropic committed to using up to 1 million Google TPU chips shortly after the quarter closed.
Bank of America analysts estimate the Anthropic deal could produce $10 billion in annual revenue alone. Cloud operating margins expanded to 24% from 17% a year earlier.
Infrastructure Investment Ramps Higher
Alphabet raised its 2025 capital spending target to $92 billion from the prior $85 billion forecast. CFO Anat Ashkenazi explained that customer demand for AI infrastructure exceeds current supply.
The company generated more than $150 billion in operational cash flow over the trailing 12 months. Yet free cash flow stayed flat in the first nine months despite 30% operational cash flow growth.
Heavy capital investment explains the squeeze. Alphabet issued $12.5 billion in bonds during May to support expansion plans.
The balance sheet remains healthy with $98 billion in cash and short-term investments. The company entered AI competition with minimal debt.
Operating margin reached 30.5% for the quarter. Excluding a $3.5 billion European Commission fine, the margin would have been 33.9%.
Core Business Stays Resilient
Advertising still generates roughly 85% of total revenue. Search brought in $56.6 billion during the quarter, beating the $55 billion forecast.
Pichai said AI is driving increased query volume on Google Search rather than cannibalizing traffic. “This is an expansionary moment,” he stated on the investor call.
YouTube and Android-related businesses posted double-digit sales growth. The third-party ad network segment continues declining as open web traffic falls.
The company’s operational cash flow topped $150 billion over 12 months while cloud backlog reached $155 billion in future contracted revenue.
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