Alphabet Stock Jumps on Earnings Beat. How Google Turned from AI Loser to Winner.

Shares of Google-parent Alphabet are up 41% this year. (Angel Garcia/Bloomberg)

Key Points

• Alphabet’s third-quarter earnings per share were $2.87, exceeding estimates of $2.26, with revenue of $102.3 billion, up 16%.
• The company increased its 2025 spending guidance for AI data centers to $92 billion, up from $85 billion previously.
• Cloud sales grew 34%, with operating profit margins improving to 24% from 17% last year.

Shares of Alphabet were up sharply in early trading on Thursday after the parent of Google reported third-quarter results that easily beat Wall Street estimates.

Earnings per share came in at $2.87, well ahead of Wall Street’s consensus estimate for $2.26, according to FactSet, and up from $2.12 last year. Revenue for the quarter reached $102.3 billion, higher than expectations of $99.9 billion, and up 16% on the year.

Analysts closely watch Alphabet’s operating margin, which came in at 30.5% for the third quarter, below analyst estimates and down from 32.3% last year. Excluding a $3.5 billion European Commission fine, the operating margin would have been a healthier 33.9%.

Created with Highcharts 9.0.1AlphabetStock ticker: GOOGLSource: FactSetNote: Class A shares As of Oct. 30

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Alphabet stock was up more than 5% to to $289.38 in early Thursday trading.

Google once again raised its guidance for 2025 spending on artificial-intelligence data centers for its Google Cloud segment. It now stands at $92 billion, up from the previous $85 billion projection. The company expects a “significant increase” in this spending next year.

Alphabet still gets around 85% of its revenue from high-margin advertising and services, but eyes remain on the cloud because of its fast growth and the extensive investments. Cloud sales growth reached 34% in the quarter. More importantly to some investors, operating profit margins improved to 24% from 17% last year.

Google’s legacy ads and services may be ignored by some in favor of the cloud, but they are still the bulwark of Alphabet’s income statement. Google had a standout quarter across these lines, with especially strong momentum in its Android-related businesses. The company continues to deliver double-digit sales growth for both Search and YouTube, Google’s core ad properties

These strong numbers were offset by the Google third-party ad network, where sales continue to decline, along with traffic on the open web. This segment is in danger of being divested in the ongoing antitrust case, U.S. v. Google.

It is these legacy assets that mostly support the company’s capital expenditures, with operational cash flow topping $150 billion in the last 12 months. But the rapid pace of capex is straining even that; free cash flow in the first nine months of 2025 was flat with last year, despite operational cash flows growing by 30%.

Like other big AI spenders, Alphabet turned to debt markets this year, selling $12.5 billion in bonds in May. Alphabet came into the AI race with little debt, so it has a lot more room to borrow, on top of its $98 billion in cash and short-term investments.

Write to Adam Levine at adam.levine@barrons.com