Alphabet Falls 12.9% as Nasdaq Drops 1.5% Amid Concerns Over AI Spending
Key Facts
Alphabet shares fell 12.9% during Thursday’s session on October 29, putting them on track for their worst day since they began trading more than 20 years ago, while the Nasdaq Composite declined 1.5%. The sell-off followed the company’s third-quarter results, which showed revenue rising 25% year over year to $127.58 billion. But revenue fell short of the average analyst estimate of $127.97 billion, according to the Associated Press. Alphabet closed at $284.74 that day, according to EL7 data. The decline renewed focus on the company’s ability to fund its AI expansion as free cash flow weakened.
Net income was $26.17 billion in the July-to-September period, down from $34.98 billion in the same period a year earlier, according to the Associated Press. That came as Alphabet’s purchases of property and equipment exceeded $51 billion during the quarter, amid spending on AI infrastructure. The company recorded negative free cash flow of $9.07 billion, compared with analysts’ expectations that it would be near breakeven. The deficit widened from $5.9 billion in the previous quarter, according to Reuters. The combination of heavy spending and negative cash flow puts infrastructure funding at the center of investor attention.
Reuters said Alphabet’s expansion of sales of AI chips it developed in-house is weighing on liquidity, as building inventory and spending on hardware and data centers precede the collection of customer payments. It said selling chips that compete with Nvidia’s products requires the company to pay for equipment before customers pay, putting pressure on cash flow. At the same time, Google Cloud revenue rose 103% year over year to $30.7 billion. The company’s CEO said infrastructure and AI solutions are driving cloud growth. This reflects a contrast between demand supported by AI services and the upfront cost of expanding the capacity to provide them.
In advertising, Google Search and other advertising revenue rose 12% to $63.3 billion, while YouTube advertising revenue increased 9% to $11.2 billion, according to the Associated Press. Alphabet said the annual growth rate in search queries reached its highest level in five years. But growth in Search and other advertising revenue fell short of some analysts’ expectations. These figures highlight a divergence in the company’s results: strong cloud growth alongside advertising growth that did not meet some estimates. Advertising remains a major source of activity as Alphabet expands its AI infrastructure.
Concern extended to the AI sector more broadly, with questions over returns on investment in the technology and the rising cost of financing data centers and buying chips, according to the Associated Press. The report said the cost of borrowing to buy more chips is weighing on data-center spending plans. In the stock market, the Nasdaq Composite fell 1.5% while most other stocks on Wall Street were higher, according to the news agency. Alphabet’s 12.9% decline put the stock on track for its worst session since it began trading more than 20 years ago. The stock closed at $284.74 on October 29, while IREN closed at $28.84 and Cipher at $8.87 on October 28, according to EL7 data.
Chief Financial Officer Anat Ashkenazi said Alphabet expects a continued sharp increase in capital expenditures during 2027. She added that the company will provide further details on spending during its fourth-quarter earnings call. The outlook keeps capital expenditure under investor scrutiny, after purchases of property and equipment exceeded $51 billion in the third quarter. It also follows the recording of negative free cash flow of $9.07 billion, which widened from $5.9 billion in the previous quarter. The next event related to these plans is the fourth-quarter earnings call, where the company said it would explain details of expected spending.