Alphabet shares suffered their worst single-day decline ever on Thursday, plunging more than 12% and erasing over $500 billion in market value. The historic sell-off dragged the Nasdaq down 350 points as surging capital expenditures on artificial intelligence collided with a disappointing slowdown in core search advertising revenue.
Alphabet shares suffered a dramatic collapse on Thursday as a dramatic collapse in Alphabet shares dominated market action. Wall Street investors have grown increasingly anxious over the mounting costs required to build out artificial intelligence infrastructure and the timeline for seeing concrete returns on hundreds of billions of dollars in multiyear spending commitments.
Alphabet Reports Double Miss and Slashes Search Margins
Diluted earnings per share declined to $2.12 against an expected figure while diluted earnings per share declined to $2.12 against an expected figure, as overall revenues fell short of expectations. The resulting 29.5% miss marked the company’s first double miss for both earnings per share and revenue since the fourth quarter of 2022.
Chief Business Officer Philipp Schindler explained during the investor call that advertising revenues from search underperformed in part because of the company’s own AI Mode search feature, which naturally displays fewer advertisements than traditional search results.
This may be the quarter we feared.
Gil Luria, D.A. Davidson analyst, via CNBC
JPMorgan Chase analysts noted in a morning research note that the magnitude of the deceleration in Google’s search business proved steeper than expected. While executives pointed to more than 1 billion users engaging with the Gemini app, investors fixated on the immediate friction between AI feature adoption and high-margin advertising cash flows.
Trillion-Dollar Infrastructure Strains Free Cash Flow
Alphabet disclosed that it has committed to more than $1 trillion worth of multiyear spending agreements designed to secure the infrastructure, energy capacity, and data center leases required to run advanced AI systems.
Capital spending reached $51.36 billion in the third quarter alone, driving free cash flow down to a negative $9.07 billion. Chief Financial Officer Anat Ashkenazi noted that capital spending will climb even higher next year from the current $195 billion to $205 billion guidance range.
Tech Sector and Industrial Stocks Fall With Alphabet
The Nasdaq Composite dropped 350 points, or about 1.6%, while the S&P 500 slipped approximately 0.4% as Alphabet’s sell-off rippled beyond Mountain View. Chipmakers that supply data center components tumbled alongside the search giant, sending the Philadelphia semiconductor index down 1.6%.
Shares of construction equipment manufacturer Caterpillar plunged 9% after its revenue growth failed to surpass expectations by as wide a margin as traders desired, making it the second-worst performer in the Dow Jones Industrial Average right behind Alphabet.
Coreweave, Nebius, and IREN all slipped in premarket trading as traders reassessed the short-term profitability of the broader artificial intelligence supply chain.
