Google’s parent, Alphabet, saw its share price collapse to its largest-ever decline after disappointing advertising revenue and soaring AI spending spooked investors.
According to Reuters, shares plunged more than 12 per cent on Thursday, wiping approximately $500 billion from the company’s market value. The collapse was the second-largest single-day destruction of market value for a US-listed company, surpassed only by Nvidia’s $593 billion crash after China’s DeepSeek AI emerged last year.
Alphabet’s third-quarter results showed the company was spending unprecedented amounts on AI infrastructure while its enormously profitable search advertising business began to show signs of strain. Revenue reached $127.6 billion, missing analysts’ expectations of $128.2 billion, while advertising revenue of $82 billion fell $1.4 billion short of forecasts.
Adjusted earnings per share came in at $2.67 against expectations of $3.02, while net income available to ordinary shareholders dropped 25 per cent to $26.17 billion. More alarming was negative free cash flow of $9.1 billion, despite analysts expecting the company to come close to breaking even.
Alphabet had already burned $5.9 billion in the previous quarter, its first negative quarterly free cash flow in 22 years as a publicly traded company. The company expects capital expenditure of between $195 billion and $205 billion in 2026, with substantially higher spending anticipated in 2027. Check Capital senior investment officer Jeremy Saltsburg warned that annual expenditure approaching $300 billion could further frighten investors.
The problem is particularly uncomfortable because Google’s enthusiasm for AI threatens the advertising business that has traditionally funded its technological adventures. Google chief business officer Philipp Schindler acknowledged that increased use of AI Mode contributed to a larger-than-expected slowdown in search advertising growth, even as the company continues experimenting with ads inside its chatbot interface.
“In a market worried about AI cannibalising the franchise, investors need to see search accelerating, not decelerating,” said Aptus Capital Advisors portfolio manager Dave Wagner. “Cloud is carrying the story, but until search shows AI is additive, the stock’s probably going to trade lower.”
Google Cloud posted much better news, with quarterly revenue more than doubling to $30.71 billion and exceeding analysts’ expectations. Google Cloud chief executive Thomas Kurian made an unusual appearance on Alphabet’s earnings call to emphasise the division’s performance and growing sales of Google’s tensor processing units, which compete directly with Nvidia’s AI accelerators.
Alphabet has begun recognising revenue from direct sales of complete TPU Systems, incorporating processors, associated hardware and software. However, chief financial officer Anat Ashkenazi warned that building TPU inventories would place additional pressure on free cash flow, while reliance on third-party cloud capacity would squeeze margins.
Google Cloud’s backlog has reached $561 billion, with Alphabet expecting to recognise more than 55 per cent of those commitments as revenue within 24 months. Nevertheless, investors are increasingly questioning the enormous cost of delivering those contracts, particularly as Alphabet, Microsoft, Amazon and Meta are collectively expected to spend more than $700 billion on AI infrastructure during 2026.
Microsoft made an uncomfortable comparison after reporting stronger free cash flow than analysts expected, sending its shares up more than five per cent. The contrasting performances suggest Wall Street’s cocaine nose jobs are becoming less impressed by promises that endless spending on AI will eventually produce fabulous returns.
Alphabet attempted to reassure investors by unveiling its Gemini 4 Carbon model shortly before publishing its financial results. Google chief executive Sundar Pichai said the release showed the company was once again “leading at the frontier”, though analysts at Bernstein remained sceptical. “Did Google rush the deployment of Gemini 4 models as an offset to softer financial metrics? And are the models ready for commercial deployment?” they asked.
