Investing.com -- Google parent Alphabet (NASDAQ:GOOGL) shares fell more than 6% in pre-market Wednesday trading after the company reported weaker-than-expected gains in revenue from its cloud computing operation.
The company reported third quarter earnings of $1.55 a share on revenue of $76.7 billion. Both measures beat expectations for profit of $1.46 a share on revenue of $75.9B.
Overall, revenue was up 11%. Cloud revenue rose 22% to $8.4B but was short of expectations for $8.6B.
Operating income came in at $21.34B, below the consensus of $21.44B.
Alphabet CEO Sundar Pichai said: "I'm pleased with our financial results and our product momentum this quarter, with AI-driven innovations across Search, YouTube, Cloud, our Pixel devices and more. We're continuing to focus on making AI more helpful for everyone; there's exciting progress and lots more to come."
Google said revenue from search and other businesses rose 11% to $44B, and YouTube advertising revenue rose 12% to $7.9B.
The management attributed weaker-than-expected cloud sales to client optimization. On the other hand, forward investments focused on AI are impacting margins and operating income.
"As 3Q23 revenues were broadly in line while operating income was below the consensus, we expect shares to trade lower," Citi analysts wrote in a client note.
Bernstein analysts said that in order for GOOGL stock to outperform, the bulls tend to highlight two specific drivers: 1) Cloud-taking share offering further AI re-rating, and 2) visible margin expansion.
"Suddenly, both of those bull cases feel very distant," they wrote.
Several Wall Street analysts lowered their price targets on GOOGL stock in response to the Q3 earnings report.
"Top-line tracking well, but margin contraction and a soft cloud print weighs heavily on the question 'why buy Google here?'," the analysts added.