Alphabet, the parent company of Google, experienced a significant decline in its market value on Thursday, with shares falling 12% and erasing a record $460 billion. This substantial drop dragged down the tech-heavy Nasdaq, which fell 1.3%. If the decline holds until the close, it will be the second-largest one-day loss of market value in Wall Street history, surpassed only by Nvidia's $593 billion loss in January 2025.
The decline was triggered by Alphabet's earnings report, which revealed a negative cash flow of $9.1 billion in the three months to the end of September. This is only the second negative quarter since Google went public in 2004 and worse than analysts expected. The company's capital expenditure, which includes spending on data centers and computer chips, reached $51.3 billion in the quarter, up from $44.9 billion in the previous one.
Alphabet's chief financial officer, Anat Ashkenazi, stated that the company still expects to spend as much as $205 billion this year, with up to $73.1 billion in the final quarter alone. The company has taken on tens of billions of dollars in debt to fund its spending and has signed commitments worth over $1 trillion for data centers, leases, equipment, and energy. A one-off item, a $5.2 billion payment to settle a 2018 European regulatory fine, contributed to the poor quarterly performance.
Google's main moneymaker, its search advertising division, reported a 12% increase in revenue to $63.4 billion. However, Philipp Schindler, Google's chief business officer, acknowledged that the company's new AI search feature, "AI mode," is making less money than the old one. The feature provides users with a written, conversational answer instead of a list of links, resulting in fewer ad clicks and "lower monetization."
Despite the challenges, Alphabet's cloud business performed well, with sales doubling to $30.7 billion. The growth was driven by demand for Google's AI services and the sale of computing power to other companies, including AI start-up Anthropic. The company's total revenue rose 25% to $127.6 billion, slightly below the average analyst forecast.
In contrast, Microsoft, which also reported its earnings this week, experienced a more positive outcome. The company's capital expenditure of $45.2 billion was accompanied by strong growth in its Azure cloud business, which pushed revenue and profit past estimates. Microsoft produced $18.6 billion in free cash flow, and its shares slipped only 1.4%, a relatively small move compared to Alphabet's.
Alphabet's chief executive, Sundar Pichai, defended the company's approach, highlighting its "full-stack" strategy as an advantage. Pichai announced that two new versions of its top Gemini model, Argon and Carbon, have closed the gap in coding, finance, and cyber security, and are expected to help Alphabet win back market share. However, investors remained skeptical, wanting to see AI spending translate into growth before investing.
Key points
- Alphabet's market value dropped a record $460 billion on Thursday.
- The company's cash flow was negative $9.1 billion in the third quarter.
- Google's AI search feature is making less money than the old one, impacting the company's search advertising revenue.
