By Salma El-Sakka
Alphabet shares tumbled more than 12 percent on Thursday, wiping roughly $500 billion off the company’s market value in the largest single-day decline in Google’s history. The selloff, second only to Nvidia’s $593 billion drop last year, reflected investor anxiety over disappointing search advertising results and the massive capital outlays required to compete in artificial intelligence.
Disappointing Earnings Trigger Selloff
The Mountain View, California-based company reported third-quarter revenue of $127.6 billion, missing Wall Street’s $128.2 billion estimate. Advertising revenue came in at $82 billion, below the $83.4 billion expected, while net income available to common shareholders fell 25 percent to $26.17 billion. Adjusted earnings per share of $2.67 also missed the $3.02 consensus.
AI Spending Weighs on Cash Flow
Alphabet posted negative free cash flow of $9.1 billion for the quarter, the first such occurrence in 22 years as a public company, as aggressive investment in cloud capacity and AI development burned $5.9 billion. Chief Financial Officer Anat Ashkenazi told analysts that 2027 capital expenditures would rise significantly from this year’s forecast of $195 billion to $205 billion, a projection that unnerved investors. “A $300-billion capex number could potentially scare the market because free cash flow now is finally negative,” said Jeremy Saltsburg, senior investment officer at Check Capital.
Cloud Growth Offsets Ad Weakness
Google Cloud revenue more than doubled to $30.71 billion, exceeding estimates and providing a rare bright spot. Chief Executive Thomas Kurian, making his earnings-call debut, said sales of Google’s tensor processing units (TPUs) had become a meaningful contributor. The cloud unit’s backlog swelled to $561 billion, with Alphabet expecting to recognize more than 55 percent as revenue within 24 months. However, Ashkenazi cautioned that building TPU inventory would further pressure free cash flow.
Microsoft Gains as Rival Falters
In contrast, Microsoft shares rose more than 5 percent after the software giant reported positive free cash flow that surpassed estimates. Analysts noted that Google’s search business, still its largest profit engine, has yet to translate AI integration into revenue growth. “Investors need to see search accelerating, not decelerating,” said Dave Wagner, portfolio manager at Aptus Capital Advisors.
Gemini 4 Unveiled Amid Scrutiny
Earlier on Wednesday, Alphabet sought to counter perceptions of falling behind in AI by unveiling the new Gemini 4 Carbon model. Chief Executive Sundar Pichai declared the company was again “leading at the frontier.” Bernstein analysts subsequently questioned whether Google rushed the deployment to offset softer financial metrics and whether the models are ready for commercial use.
