Alphabet's shares plummeted more than 12% on Thursday, Oct. 29, following the release of the company's third-quarter financial results, marking the largest single-day percentage decline in the company's 22-year history as a public company. The drop erased roughly $500 billion in market value, making it the second-worst one-day wipeout for any U.S.-listed company, behind only Nvidia's nearly $600 billion loss in late January 2025.
The company reported quarterly revenue of $127.58 billion, falling short of Wall Street's expectation of $128.22 billion. More concerning to investors was the performance of Google's search advertising business, which grew 12% to approximately $63 billion—below analysts' estimates of roughly $65 billion. Adjusted earnings per share came in at $2.67, missing forecasts of $3.02. The company also recorded a negative free cash flow of $9.07 billion, defying analyst expectations of positive free cash flow of $2.70 billion. This marked the second consecutive quarter of negative free cash flow, a condition Google had not experienced in any quarter since going public in 2004.
Investor concerns centered on two major issues: the threat posed by artificial intelligence to Google's dominant search business, and the scale of the company's capital spending without yet clear returns. Alphabet disclosed that it has committed to more than $1 trillion in multiyear spending agreements for AI infrastructure, energy, and leases. Capital expenditures totaled $51.4 billion in the third quarter alone, and the company raised its full-year capital expenditure guidance to between $195 billion and $205 billion, expecting annual spending to exceed $300 billion in 2027. Analysts at JPMorgan Chase noted that the "magnitude" of the slowdown in Google's search business was "steeper than expected."
The decline reflects a broader shift in how Wall Street is evaluating the artificial intelligence spending boom. While technology companies continue to pour hundreds of billions into data center infrastructure, investors increasingly question whether those investments will generate sufficient returns. The concern is heightened by the possibility that AI-powered chatbots—including Google's own AI Mode search feature—could cannibalize traditional search advertising revenue faster than Google can adapt. Senior Vice President Philipp Schindler told investors on Wednesday's earnings call that Google's own "AI Mode" search feature was resulting in fewer ads, though he said the company is working on addressing the issue through experiments that have "shown promising results."
Alphabet executives highlighted some positive developments during the earnings period. Google Cloud revenue more than doubled to approximately $31 billion, beating analyst expectations of $28.7 billion, with growth of 103% compared to a Street estimate of 100%. The company also announced that its Gemini AI app has reached 1 billion users, marking the fastest-growing product in Alphabet's history. However, these gains were outweighed by investor concerns about the company's free cash flow and the uncertainty surrounding AI monetization.
The market reaction extended beyond Alphabet. Amazon reported third-quarter results after the bell on Thursday showing revenue that fell short of Wall Street expectations, and its stock declined 10% in after-hours trading despite reporting strong cloud growth of 39%. Shares of semiconductor companies that supply equipment for artificial intelligence data centers also fell, with the Philadelphia semiconductor index dropping 1.4%. Caterpillar, a major supplier of equipment used to build data centers, plunged 9.2%, making it the second-worst performer in the Dow Jones Industrial Average for the day behind Alphabet.
In contrast, Microsoft, which also continues investing heavily in AI infrastructure, reported $18.6 billion in free cash flow for the third quarter and saw its shares end Thursday's session essentially flat. Industry analysts pointed to the divergence as evidence that the market is beginning to distinguish between companies spending rationally on artificial intelligence and those with less disciplined approaches. "We are now getting to see who is spending rationally on AI and who is not," said Richard Reyle, chief investment officer at Questar Capital Partners.
