Nasdaq Falls More Than 1% as AI Costs Threaten $693 Billion in Losses

Key Facts

The Nasdaq fell more than 1% on Thursday, October 29, after Alphabet's results reignited concerns about rising artificial intelligence costs, Reuters reported. The agency said Google’s parent was on track to lose more than $500 billion in market value, and that the Nasdaq-100 was at risk of wiping out more than $693 billion if losses continued. Alphabet shares were down about 13% at the time of Reuters' report and were heading for their biggest one-day drop on record. The pressure followed results showing revenue above the previous year but below the average analyst estimate. The selloff spread to technology and cybersecurity stocks as investors focused on the cost of AI investment and its cash returns.

Alphabet's third-quarter revenue rose 25% year over year to $127.58 billion, compared with an average estimate of $127.97 billion, according to the Associated Press. But net income fell to $26.17 billion in the July-to-September period from $34.98 billion in the same period a year earlier. Earnings per share were $2.12, against analyst estimates of $3.01. By contrast, Google Cloud revenue jumped 103% to $30.7 billion, while revenue from Google Search and other advertising rose 12% to $63.3 billion. YouTube advertising revenue grew 9% to $11.2 billion, highlighting the gap between growth in some of the company’s units and pressure on its overall results.

Reuters linked Alphabet's decline to what it described as disappointing search advertising results and a sharper cash drain as AI-related spending accelerated. The company's negative free cash flow was $9.07 billion in the third quarter, up from a cash burn of $5.9 billion in the previous quarter, the agency said. An investment manager said investors had “started scrutinizing when investments will convert into revenue compared with the rate of capital spending.” He added that some investors “are no longer giving hyperscalers an open-ended pass to spend without limits.” The scrutiny reflects a direct question about when heavy spending will show up in revenue and cash flow, as technology companies compete to expand AI-related infrastructure.

Alphabet said its capital expenditure would rise significantly in 2027, according to the Associated Press, citing Chief Financial Officer Anat Ashkenazi. The company said it would provide more details during its fourth-quarter earnings call. In the software sector, ServiceNow fell 23.3% at the time of Reuters' report after missing third-quarter profit estimates, despite subscription revenue growing 21% year over year to $3.988 billion. The company said it exceeded the high end of its growth and profitability guidance and raised its 2026 annual contract value target for AI to $1.7 billion. It also raised its annual free cash flow margin target to 36%.

Fortinet shares fell 21.7% at the time of Reuters' report, even though the company reported year-over-year third-quarter revenue growth and raised its annual guidance. Revenue was $2.08 billion, up 20% year over year, and Fortinet raised its 2026 revenue growth guidance to 20%. Product revenue jumped 37% to $765 million, while billings rose 29% to $2.34 billion. In Thursday morning trading, the Nasdaq Composite fell 1.2% and the S&P 500 was down 0.3%, while most other stocks on Wall Street were higher, according to the Associated Press. The Dow Jones Industrial Average fell 0.2% at the same time, showing that pressure was concentrated in major technology stocks.

The stock moves came as the yield on the 10-year U.S. Treasury fell to 4.98% on Thursday from 5.05% at Wednesday's close, according to the Associated Press. The yield had reached 5.30% earlier in October before retreating. Brent crude fell 2% to $109.42 a barrel in Thursday trading. The Federal Reserve left interest rates unchanged on Wednesday, as expected, Reuters reported. The agency said traders leaned toward a rate increase at the next meeting in December, while Alphabet's chief financial officer said the company would explain its expected 2027 capital spending in more detail during its fourth-quarter earnings call.