Alphabet’s investment in Elon Musk’s SpaceX knocked an estimated $11 billion off its value during the third quarter, helping turn strong operating growth into a disappointing earnings result for Google’s parent.
The paper loss came as SpaceX shares declined, contributing to Alphabet reporting net income of $26.17 billion, down 25% from a year earlier.
Reported earnings were $2.12 a share, while adjusted earnings of $2.67 missed Wall Street’s $3.02 forecast.
Yet operating profit climbed 30% and Google Cloud revenue doubled. That contrast leaves investors weighing an unusual accounting setback against growing concerns about the cost of Alphabet’s AI expansion.
Alphabet Q3 earnings: How SpaceX inflicted an $11 billion paper loss
Alphabet owns about 550 million shares in SpaceX, making the rocket company an important investment outside Google’s core business.
Those shares fell in value from roughly $171 to $151 during the September quarter. Applied across Alphabet’s holdings, that $20 decline translates into an estimated $11 billion pre-tax reduction in value.
The adjustment is an accounting requirement, not evidence that Alphabet sold its SpaceX shares or paid out $11 billion in cash. It reflects what the holding was worth at quarter-end.
“Other income and expenses were negative $8.2 billion due primarily to unrealized loss from our investment in SpaceX,” finance chief Anat Ashkenazi said on the earnings call.
Alphabet separately recorded an $8.66 billion net loss on equity securities across its investment portfolio. Its overall other-expense figure was $8.22 billion, after other gains and costs were included.
Google’s businesses grew even as net earnings fell
Alphabet’s third-quarter revenue rose 25% to $127.6 billion, while operating income climbed 30% to $40.6 billion. Google Cloud was the standout, with sales jumping 103% to $30.7 billion amid demand for AI infrastructure.
Net income nevertheless fell from $34.98 billion to $26.17 billion. The $8.66 billion equity-securities loss reduced after-tax earnings by about $6.7 billion, equivalent to $0.55 per diluted share, according to Alphabet’s filing.
Independent technology analyst Luke Lango called the SpaceX-related hit “accounting noise”, Fortune reported. His point was that fluctuations in an investment’s value say little about whether customers want Google’s products.
But the miss was not solely about SpaceX. Without the portfolio loss, adjusted earnings still fell short of expectations.
Advertising revenue came in below forecasts, and growth in search slowed as Google pushed further into AI-powered results, where advertising remains less developed.
Alphabet stock: AI spending poses a more lasting challenge
Alphabet spent $51.4 billion on capital projects during the quarter, more than double its $24 billion outlay a year earlier. Free cash flow was negative $9.07 billion, compared with negative $5.9 billion in the previous quarter.
Management expects 2026 capital expenditure of $195 billion to $205 billion and says spending will rise significantly next year, without providing a 2027 number.
“A $300-billion (capex) number could potentially scare the market because free cash flow now is finally negative,” Check Capital’s Jeremy Saltsburg told Reuters.
Alphabet shares fell 10% in extended trading on Wednesday as investors weighed cash drain alongside slower search growth.
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