Alphabet shares plunge after the technology giant shed more than $500bn in market value on Thursday, as third-quarter results revealed that artificial intelligence answers are eroding core advertising returns while capital expenditure continues to climb across its infrastructure buildout.
Key points
- Alphabet recorded a 12.29 per cent drop in its share price, erasing roughly half a trillion dollars from its market capitalisation in the worst single day in the firm’s trading history.
- Search advertising revenue rose 12 per cent to $63.4bn, missing analyst projections of $65bn after Google shifted standard search results towards automated summaries.
- Capital spending rose to $51.3bn for the quarter, driving negative free cash flow of $9.1bn and pushing future operational commitments above $1tn.
- Google Cloud revenue doubled to $30.71bn, led by demand for custom hardware, but could not offset weaker profit margins elsewhere.
Search monetization stumbles under AI Mode
The immediate catalyst for the market sell-off was Google’s core revenue engine. While total company revenue rose 25 per cent year over year to $127.6bn, it fell short of the $128.2bn expected by analysts, according to LSEG data disclosed in Alphabet’s third-quarter earnings release. Total advertising revenue reached $82bn, trailing projections of $83.4bn.
Search advertising alone generated $63.4bn, up 12 per cent from a year earlier. Wall Street analysts had forecast growth closer to 15 per cent. The deceleration comes as the company serves automated answers across a wider portion of general queries.
Philipp Schindler, Google’s chief business officer, told investors on an earnings conference call that the company’s AI Mode had made it harder to monetize queries at historical rates. The feature synthesises answers directly at the top of search result pages, displacing traditional commercial links that drive pay-per-click revenue.
The shift also echoes broader turbulence across the web, as platforms react to changing traffic flows. Similar patterns emerged when Reddit login requirement tests began as Google AI cut referrals, highlighting how direct answer engines interrupt longstanding online publishing models.
Schindler said Google is testing advertisements within AI Mode and plans to expand commercial placements across international markets. For now, the transition has depressed margins across its most profitable unit.
The scale of the single-day sell-off
Trading data from Google Finance market tracking showed the stock falling 12.29 per cent by the close of New York trading on Thursday. At intraday lows, the price dropped 13 per cent.
The decline wiped out roughly $510bn of market value, reducing Alphabet’s valuation from $3.97tn to $3.46tn. It marks the steepest single-day market loss in Google’s history, and the second-largest valuation collapse recorded for a public company in the United States, behind Nvidia’s $593bn drop in 2025.
Broader stock indices also retreated, with the Nasdaq Composite and S&P 500 recording declines on Thursday as technology valuations came under scrutiny.
Rising capex and negative cash flow
Beyond advertising weakness, investors responded to the scale of Alphabet’s capital spending. Capital expenditure reached $51.3bn during the third quarter, up from $44.9bn in the second quarter, driven by data centre expansion, server procurement and electrical utility agreements.
These expenses contributed to a negative free cash flow of $9.1bn. Alphabet had recorded negative cash flow of $5.9bn in the previous quarter, marking the first time the company consumed more cash than it produced since its 2004 stock market listing. Net income fell 25 per cent to $26.17bn, leaving adjusted earnings per share at $2.67 against consensus expectations of $3.02.
The results follow earlier warnings when Alphabet shares slumped after capital spending drove cash reserves down earlier in the year. Analysts expect capital expenditure to climb to $73bn in the fourth quarter, putting full-year outlays between $195bn and $205bn.
Anat Ashkenazi, Alphabet’s chief financial officer, informed analysts that capital outlays will expand significantly in 2027. Regulatory filings showed the business holds more than $1tn in future purchase obligations for infrastructure, along with an additional $98.5bn in prospective capital commitments.
Ashkenazi also warned that relying on third-party cloud capacity to satisfy consumer demand will place near-term pressure on operating margins, even as proprietary hardware deployments accelerate.
Cloud computing delivers a partial offset
The primary area of growth remained Google Cloud, where revenue climbed 103 per cent to $30.71bn. Thomas Kurian, chief executive of the cloud division, addressed analysts directly to detail enterprise customer wins across cybersecurity, financial technology and retail.
Kurian said commercial sales of Google’s custom tensor processing units, or TPUs, have become a meaningful revenue stream. The company began booking direct sales of integrated TPU Systems, which package proprietary silicon alongside proprietary networking and software libraries, during the quarter.
The division’s total order backlog rose to $561bn. Alphabet expects to realise more than 55 per cent of that total within the next 24 months, providing visible future revenue even as upfront infrastructure outlays weigh on cash reserves.
Industry-wide pressure on tech balance sheets
Alphabet is not alone in financing massive technical architecture. Big technology companies including Microsoft, Amazon and Meta are projected to spend more than $700bn collectively on infrastructure during 2026.
Amazon posted third-quarter results on Thursday showing negative cash flow of $42bn, sending its shares down 6 per cent in extended trading as chief executive Andy Jassy defended massive spending on Bedrock and proprietary silicon. Microsoft, which trimmed quarterly AI expenditure by around $5bn and reported positive cash flow, saw its stock hold comparatively steady.
Prior to its earnings release, Google announced its new Gemini 4 Carbon foundation model, aiming to demonstrate technical leadership. Sundar Pichai, Google’s chief executive, said the model shows the firm remains at the frontier of machine learning research.
Alphabet executives must now demonstrate to Wall Street that international advertising in AI Mode can restore search revenue growth before fourth-quarter capital expenditures reach projected highs.
