Alphabet’s 11.7% Drop Pressures Tech Stocks as AI Spending Concerns Grow
Key Facts
Alphabet shares fell 11.7% during the October 29 session, while the Nasdaq declined more than 1%, after the company’s results reignited concerns over rising AI costs, according to Reuters. The move came after Alphabet reported third-quarter revenue of $127.58 billion, up 25% year over year but below the analyst consensus of $127.97 billion, according to the Associated Press. Net income was $26.17 billion in the July-to-September period, compared with $34.98 billion in the same period a year earlier. In extended trading on the evening of October 28, the stock had fallen more than 10% to $289.95, according to AP. Alphabet closed at $284.74 on October 29, according to EL7 data. The results highlight the challenge of financing AI infrastructure expansion, while signs of pressure on cash flow remain clear.
Free cash flow fell to negative $9.1 billion in the third quarter, while analysts had expected it to come close to break-even, according to Reuters. The company had recorded negative cash flow of $5.9 billion in the second quarter, the first time it had entered negative territory in its 22 years as a public company, according to the same source. The latest deficit comes as spending continues on the infrastructure required for AI services and cloud computing. The CFO said capital expenditures in 2027 would increase “significantly” compared with the 2026 spending forecast range of $195 billion to $205 billion, without giving a specific figure for next year. She added that details of the increase would be presented during the fourth-quarter earnings call, according to AP. These projections put cash flow under investor scrutiny as investment plans expand.
By contrast, Google Cloud outperformed analyst expectations, with revenue rising to $30.71 billion in the third quarter, more than doubling, according to Reuters. The growth underscores demand for cloud computing services as Alphabet expands its AI-related investments. But advertising, a major source of revenue, fell short of expectations: advertising revenue was $82 billion, compared with forecasts of $83.4 billion, according to Reuters. A company official said search advertising growth had slowed more than expected. According to AP, search and other advertising revenue rose 12% to $63.3 billion, while YouTube advertising revenue increased 9% to $11.2 billion. AP noted that both growth rates were below some analysts’ expectations, adding to the contrast between cloud growth and a slowdown in some advertising sources.
Alphabet’s results come as the largest technology companies move toward heavy spending on AI infrastructure. Alphabet, Microsoft, Amazon and Meta expect their combined spending to exceed $700 billion during 2026 to expand data centers and buy chips and networking equipment, according to Reuters. That investment is facing growing scrutiny over how quickly it will translate into revenue, as Alphabet shows signs of cash-flow pressure. A portfolio manager told Reuters that investors need to see “an acceleration in search, not a slowdown.” The concern is linked to fears that AI applications could eat into the company’s core search business. In the October 29 session, Reuters linked the Nasdaq’s decline and the sell-off in Alphabet to renewed concerns over rising AI costs.
For data center and cryptocurrency stocks, available EL7 data shows IREN closing at $28.84 and Cipher at $8.87 on October 28. Alphabet also closed at $284.74 on October 29, but closing data alone does not describe the stock’s movement during the session. The available evidence does not include a documented figure for IREN’s or Cipher’s decline in the October 29 session, so a specific daily move in either stock cannot be attributed to Alphabet’s results. The company’s results put questions about financing capital spending at the center of the debate over AI infrastructure, but movements in the two companies’ shares alone do not establish a direct cause. The next announced date for investors is Cipher’s earnings report, scheduled for November 2. Those results will be the next catalyst for tracking the company’s performance, while Alphabet’s CFO said the company would explain its 2027 spending plans in greater detail during the fourth-quarter call.