Alphabet, the parent company of Google, reported its third-quarter earnings, surpassing analysts’ revenue and earnings per share projections, but saw a drop in its stock price during after-hours trading due to disappointing results from its cloud business.

For the third quarter, Alphabet reported revenue, excluding traffic acquisition costs, of $64.1 billion, exceeding expectations of $63 billion and marking an increase from the $57.3 billion generated in the same period last year. Adjusted earnings per share came in at $1.55, surpassing the anticipated $1.44 per share.

However, the company’s cloud business fell short of Wall Street’s estimates, with Q3 revenues totaling $8.41 billion, below the expected $8.6 billion. In response to the earnings report, Alphabet’s shares dropped by over 5% during after-hours trading.

Google CEO Sundar Pichai expressed satisfaction with the financial results and emphasized the company’s product innovations driven by artificial intelligence (AI) across various platforms, including Search, YouTube, Cloud, and Pixel devices.

Despite the cloud revenue miss, Alphabet’s advertising business posted $59.7 billion in revenue, outperforming consensus estimates of $58.9 billion.

Alphabet, along with industry peer Meta, serves as a key indicator for the digital advertising sector. Any underperformance from these tech giants can have a significant impact on other digital ad companies’ stock prices.

Alphabet has been strategically investing in generative AI initiatives after facing competition from Microsoft, which began incorporating the technology into its products earlier this year after investing in AI company OpenAI.

Google has introduced a range of generative AI products for both consumer and enterprise applications, aiming to regain its status as a leader in Silicon Valley’s AI landscape.

These AI endeavors are part of Google’s plan to compete with Amazon and Microsoft in the cloud computing market, where it currently ranks third.

The earnings release coincides with Alphabet’s ongoing legal battles, including two antitrust lawsuits filed by the Department of Justice, which accuse the company of abusing its market power and distorting competition in online search and digital advertising markets.