Alphabet’s market capitalization plunged by $500 billion on Thursday as the stock dropped more than 11% – on track for its worst loss ever as AI chatbots eat into Google’s Search business.
If the stock closes down more than 9.77% in Thursday’s session, it will be the worst reaction in the company’s 22-year history and the second-largest single-day loss of any stock. Nvidia currently holds the record with a roughly $589 billion loss on Jan. 27, 2025.
In the third quarter, Alphabet reported its first double miss for both earnings per share and revenue since the end of 2022 as AI chatbots hit its core Google Search business. The company also disclosed that it has been burning through cash faster than expected.
Investors sounded the alarms over the miss, since the high-margin Search business typically provides much of the funding that Alphabet has been using to spend big on the AI build-out.
“This may be the quarter we feared,” Gil Luria, head of technology research at D.A. Davidson, told CNBC, nodding to concerns that AI agents will steal business from traditional search engines.
Total revenue for the third quarter was $127.6 billion, missing estimates of $128.2 billion. Net income fell 25% to $26.17 billion. Adjusted earnings per share of $2.67 also missed expectations of $3.02.
Alphabet’s cloud business made $30.7 billion, beating analysts’ expectations. But its services business – which includes Search – recorded $96.3 billion, missing estimates of $98.5 billion.
Revenue from Google’s Search grew just 12% in the third quarter over the past year, down from 17% in the second quarter and 19% in the first quarter. It also missed forecasts for the second straight quarter.
Chief Financial Officer Anat Ashkenazi announced that capital expenditures will increase significantly next year, largely driven by the AI race – even as the tech giant revealed it has been flying through its cash reserves.
Alphabet reported negative free cash flow of $9.07 billion in the third quarter, worse than Wall Street expectations that it would come close to breaking even.
The company had revealed a negative cash flow of $5.9 billion in the second quarter, marking the first time it fell into the red since the company went public in 2004.
It’s just one of the many companies spending billions on AI research and computing power, eager to build up troves of compute and lease the capacity out to other companies.
Alphabet reported a $7.66 billion operating income loss in “Alphabet-level activities,” which it said is largely related to AI development.
Microsoft, meanwhile, reported $45.2 billion in capital expenditures in the third quarter – 30% higher than the same time last year but significantly below expectations of $50.67 billion. It also lowered its full-year spending forecast to $170 billion.
The company’s free cash flow fell 27% to $18.63 billion, but remained positive.
Azure, its cloud computing sector, jumped 48% to become the company’s largest business.
The spending pullback initially came as a welcome reprieve for investors, who have been concerned that companies are spending too heavily on AI.
But shares of Microsoft ultimately fell 1.4% as traders took the slowdown as a sign that the company is not expecting blowout returns from AI investments anytime soon.
It also weighed on other “neocloud” stocks – a name for companies that rent out AI computing capacity. Shares of IREN and Nebius fell 4% and 2.8%, respectively.
The Nasdaq plummeted 1.1% Thursday as Google’s Search revenue weighed on other tech and AI stocks.
