Google parent Alphabet on Monday reported a sharp drop in profits over the past quarter as it ramped up spending for a wide array of new gadgets and services.

Profit dipped 23 percent from a year ago to $7.1 billion as revenue that 20 percent to $40.5 billion for the California tech giant and internet search leader.

Shares in Alphabet fell 1.1 percent in after-hours trade on the weaker-than-expected profits.

Digital advertising at Google continued to be the primary money-maker at Alphabet -- accounting for some $34 billion in revenue.

But revenue from other sources including cloud computing climbed more than 40 percent to $6.4 billion, according to the earnings report.

Alphabet has been pumping money in research and development for artificial intelligence, cloud infrastructure, and launching new Pixels smartphones and other hardware.

Google says its services create more consumer choice, but that it would cooperate with regulators on antitrust investigations
Google says its services create more consumer choice, but that it would cooperate with regulators on antitrust investigations GETTY IMAGES / Drew Angerer

"We continue to invest thoughtfully in talent and infrastructure to support our growth, particularly in newer areas like Cloud and machine learning," said Alphabet chief financial officer Ruth Porat.

The company, which faces antitrust reviews over its dominance of internet search on both sides of the Atlantic, has been seeking to diversify its business with more hardware and new services.

Losses on "other bets" such as delivering internet services from high-altitude balloons ballooned to $941 million in the quarter, compared to a $727 million loss in the same period a year earlier.

Google chief Sundar Pichai said in a statement, "I am extremely pleased with the progress we made across the board in the third quarter, from our recent advancements in search and quantum computing to our strong revenue growth driven by mobile search, YouTube and Cloud."

The results were impacted by a one-time charge of $549 million, believed to be linked to a tax settlement with French authorities.

Alphabet said it set aside nearly $1.6 billion as a provision for income taxes,up from $891 million last year and that its effective tax rate would be 18 percent, double that from a year earlier.

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