Alphabet, Google's parent company, last night reported results in which its cloud looks stronger than ever, yet the stock fell about 10% in after-hours trading. According to the official release, revenue grew 25% to $127.6 billion. According to CNBC, revenue and earnings were slightly below Wall Street's expectations.
The cloud doubled
The standout figure is Google Cloud: the cloud unit's revenue jumped 103% to $30.7 billion, and its operating income reached $11.1 billion. According to the company, sales of TPU systems, the chips Google develops for AI, contributed significantly to growth. The cloud backlog rose to $561 billion, above the roughly $514 billion expected before the report.
Why the stock fell
The problem is the other side of the ledger. Capital spending reached $51.4 billion in a single quarter, and free cash flow was negative: minus $9.1 billion. Alphabet kept its spending forecast for this year at $195 billion to $205 billion, but said it expects spending to exceed $300 billion in 2027. For investors, that is a sign the AI race will keep consuming cash for at least another year.
The Microsoft comparison
On the same evening, Microsoft rose 4% after showing strong Azure growth and lower-than-expected spending. The difference in reactions shows what the market is looking for now: not just cloud growth, but also spending discipline.
The Israeli angle
Google is one of the largest employers in Israel, and this year bought Wiz for $32 billion to strengthen its cloud security. Google Cloud's sharp growth strengthens the logic behind that deal, and the standing of the Israeli cybersecurity operation within the company.
