Alphabet experienced a significant market decline, losing nearly $500 billion in value due to disappointing quarterly results and concerns over its AI spending strategy.
Alphabet Inc. faced a dramatic loss of nearly $500 billion in market value on Thursday, marking one of the steepest single-day declines in its history. This downturn followed the release of quarterly results that fell short of investor expectations.
The company’s shares plummeted nearly 13%, closing at $283.82. This decline represents the second-largest single-day loss in market value for any company, with Nvidia holding the record after losing $598 billion in January 2025.
For the third quarter, Alphabet reported revenue of $127.6 billion, reflecting a 25% increase compared to the same period last year. However, this figure was below analysts’ expectations of $128.2 billion. Additionally, the company’s adjusted earnings per share came in at $2.67, significantly lower than the anticipated $3.02.
Much of the investor concern centered on Google’s advertising business, which constitutes the largest portion of Alphabet’s revenue. The growth rate for search advertising revenue slowed to 12% year over year, down from 17% in the previous quarter. Alphabet acknowledged that its own AI features might be impacting advertising revenue generation.
Philipp Schindler, Google’s Chief Business Officer, informed investors that the increasing use of AI Mode is reducing revenue from ads displayed alongside traditional search results. AI-generated search responses tend to offer fewer opportunities for ad placements compared to conventional search results.
Schindler also mentioned that the company is exploring ways to integrate advertisements into AI Mode, although new ad formats are still under development.
In addition to these challenges, Alphabet is heavily investing in expanding its computing infrastructure. The company reported capital expenditures of nearly $51.4 billion during the quarter, primarily directed towards data centers and the computing infrastructure necessary to support its growing AI operations. Alphabet has forecasted capital expenditures between $195 billion and $205 billion for the year, more than double its spending from the previous year. The company has also indicated that spending is expected to increase further in 2027.
This substantial investment has contributed to a negative free cash flow of $9.1 billion for the quarter, marking the second consecutive quarter in which Alphabet’s cash outflows exceeded the cash generated after capital expenditures.
On a more positive note, Google Cloud revenue more than doubled to $30.7 billion, representing a 103% increase from the previous year. Additionally, the Gemini app has surpassed 1 billion users.
Despite these gains, investors remain apprehensive about whether revenue generated from AI services will be sufficient to offset the enormous costs associated with building and operating the necessary infrastructure.
Reports indicate that major tech companies, including Meta, Alphabet, and Amazon, are on track to collectively spend over $700 billion this year on AI chips and infrastructure. In contrast, shares of Microsoft rose nearly 2.9% in after-hours trading in New York on Wednesday.
As Alphabet navigates these challenges, the future of its AI investments and their impact on overall revenue will be closely monitored by investors and analysts alike, according to The American Bazaar.