Alphabet disappoints, stock falls 12% | Weekend Intelligence #36
October closed in a different mood than it began. The technologies that had been driving markets higher all year got an unpleasant reminder after Alphabet and Intel reported earnings: even decent revenue can fall short when expectations are running ahead. The Fed left rates unchanged, but for the first time in a while, voices calling for a rate hike were heard. Europe remained calm for now, and the ECB said goodbye to its current leadership.
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Key points
Why Alphabet plunged 12.3% after record revenue of $127.6 billion
What an unusual Fed dissent means, with two votes calling instead for a rate hike
How Intel turned 21% revenue growth into its worst trading day
Why October was Wall Street’s weakest month since spring and what dragged the Nasdaq down
What to expect from Apple and AMD earnings and Friday’s U.S. jobs report
Alphabet after earnings −12.3%: EPS of $2.12 and free cash flow of −$9.1B
Alphabet reported third-quarter results on Wednesday, October 28, after the market close. On the first full trading day afterward, Thursday, October 29, the share price fell 12.3% to $282.32; on Friday, it dropped another 1.5% to $278.22. Revenue was up 25% to $127.6 billion, but earnings per share of $2.12 missed the consensus estimate of $3.02.
The earnings decline did not come from operations. Operating income rose 30% to $40.6 billion, with a 31.8% margin. The difference came from other income and expenses: minus $8.2 billion versus plus $12.8 billion a year earlier, a $21 billion swing. This included an $8.7 billion loss on the equity investment portfolio, which includes its stake in SpaceX.
But the market reacted to cash flow. Capital expenditures hit a record $51.4 billion, up from $24 billion a year earlier, and free cash flow was minus $9.07 billion, while analysts had expected minus $2.7 billion. That makes two consecutive quarters in negative territory. Alphabet covered the shortfall by issuing $28.7 billion in bonds and selling $12.4 billion in shares; there were no buybacks.
Long-term debt jumped to $125.1 billion from $21.6 billion a year earlier. In contrast, management pointed to a backlog of $567.7 billion, including $560.8 billion in cloud, up $48.2 billion quarter over quarter. According to CFO Anat Ashkenazi, only just over 55% of the total is expected to be recognized as revenue within 24 months.
Alphabet is helping to generate some of that demand itself. Some $16.8 billion of the backlog is attributed to Crux AI, a joint venture with Blackstone founded in May 2026, which the filing identifies as a related-party transaction. Blackstone has committed to invest up to $5 billion in capital, while Alphabet is providing guarantees for data center and energy infrastructure of up to $10 billion.
The cloud business itself improved: revenue +103% to $30.7 billion, operating margin of 36.2% versus 23.7% a year earlier, and operating income of $11.1 billion. TPU chips are no longer just an internal tool—from 2027, Oracle Cloud Infrastructure will offer them too. Analysts estimate sales of up to $99 billion there, and OpenAI is also reportedly in talks to buy them, according to Bloomberg.
The rotation out of AI winners lasted all week: the Nasdaq Composite fell 2.86% on Friday to 25,437 points, its biggest drop since June 5, and is 7.8% below its October 6 record; Intel lost 28.6%, AMD 10.9%, Nvidia 4.2%. Microsoft cut its capex forecast for this year to $170 billion, while Alphabet kept its range of $195 billion to $205 billion. The 2027 figure will not be released until the January conference—and that is the first signal investors are waiting for.
Fed holds at 3.75-4%, but dissent points higher: GDP at 3.4% and inflation at 3.7% put December in focus
The Fed held rates in the 3.75-4% range by a 10:2 vote, but both dissenting votes went in the opposite direction from what has been customary in recent years: Governor Lisa Cook and Cleveland Fed President Beth Hammack wanted to raise rates by a quarter of a percentage point. Rates have been at this level since the September increase of 25 basis points. There was no signal on December.