Alphabet’s $9bn cash burn drags neocloud stocks lower

Alphabet posted negative free cash flow of $9.07 billion in the third quarter, its second consecutive quarter of cash burn, sending GOOGL shares down more than 10% in premarket trading on Thursday and pulling neocloud stocks sharply lower.

Nebius, CoreWeave, and are the most direct proxies for AI infrastructure spending sentiment, and all three fell in sympathy before Thursday's open — NBIS by 6.5%, CRWV by 6.1%, and IREN by 4.8%.

Alphabet's Q3 results were worse-than-expected. Revenue came in at $127.6 billion against a consensus estimate of $128.2 billion, while EPS of $2.12 fell well short of the $3.02 forecast.

The shortfall was concentrated in Google's core advertising business: search ad revenue grew only 12% year-on-year, decelerating from 17% in Q2 and 19% in Q1, three consecutive quarters of slowing growth. Google advertising revenue of $82.01 billion came in roughly $1.4 billion below expectations.

Management attributed the search deceleration partly to the growing use of AI Mode, a direct acknowledgment that Google's own AI product is cannibalizing its highest-margin revenue stream.

The $9.07 billion cash outflow followed a $5.9 billion outflow in Q2, and CFO Anat Ashkenazi told analysts that 2027 capital expenditure will rise significantly from 2026's already-elevated $195 billion to $205 billion guidance range, without providing a specific figure. 

"The margin setup looks tough heading into 2027, with Cloud facing higher depreciation and thirdparty bridge capacity costs, while Search margins came in below expectations," Mizuho analyst Lloyd Walmsley said in a note.

Google Cloud revenue more than doubled to $30.71 billion, beating the $29.10 billion estimate, and the Cloud backlog grew to roughly $560 billion, with more than 55% expected to convert to revenue within 24 months.

For neocloud names, the timing is particularly painful. CoreWeave had rallied roughly 18% over the three trading days through Wednesday.