Chip Stocks Fall as Much as 3.6% After Alphabet Results and 2027 Spending Outlook

Key Facts

Chip stocks fell in early trading on Thursday, October 29, after Alphabet reported third-quarter results showing revenue growth below analysts’ expectations and net income down from a year earlier. Intel fell 3.6%, AMD dropped 3.3% and Nvidia slipped 1%, according to Invezz’s summary of the EL7 brief, while Reuters said the broader semiconductor sector was trading lower. The move came after Alphabet shares fell more than 10% to $289.95 in after-hours trading on Wednesday, October 28. Nasdaq 100 futures also fell 1.5% in Asian trading on Thursday, according to Investing.com. The results revived investors’ question of whether heavy spending on artificial intelligence can generate returns commensurate with its cost.

Alphabet’s revenue for the quarter ended September 30 was $127.58 billion, up 25% from the same period a year earlier, but below the average analyst estimate of $127.97 billion, according to a FactSet poll cited by the Associated Press. Net income was $26.17 billion, compared with $34.98 billion a year earlier. Earnings per share were $2.12, versus analyst estimates of about $3.01. The picture was not one of across-the-board weakness: revenue rose, but some metrics came in below expectations or year-earlier levels.

Spending on technical infrastructure was a key focus in the market’s reading of the results. Alphabet said in its filing with the U.S. Securities and Exchange Commission that most capital spending was allocated to technical infrastructure to support its artificial intelligence investments. About 65% of technical infrastructure investment in the quarter went to servers and networking equipment. That puts a large share of spending toward the equipment needed to expand computing and networking capacity, while the company said its technical investments support its AI businesses. Spending figures alone, however, do not explain the move in chip stocks; coverage linked investors’ reaction to broader concerns about accelerating spending, alongside other factors affecting the company’s free cash flow.

By contrast, Alphabet’s cloud business showed strong demand for its AI-related services. Google Cloud revenue rose 103% year over year to $30.7 billion, a record increase, the company said in its filing. Alphabet said the performance reflected demand for infrastructure and enterprise AI solutions, as well as core cloud platform services and TPU systems sales. In advertising, search and other advertising revenue rose 12% to $63.3 billion, while YouTube advertising revenue increased 9% to $11.2 billion. The Associated Press noted that both advertising gains came in below some analysts’ expectations, highlighting a gap between strong cloud growth and relatively weaker performance on some other measures.

The concern extends to whether major cloud computing companies will continue spending at the same pace before clear returns on AI investments emerge. Reuters quoted an investment official as saying that some investors were no longer giving these companies “unlimited spending latitude.” The news agency also reported that investors were watching capital spending plans for signs that heavy AI investment was generating returns, amid concerns about debt financing as borrowing costs rise. An analyst at Equiti Group said “demand for AI has not stopped,” but added that investors’ main concern was financing expansion through debt. That means the fall in chip stocks came amid broader scrutiny of how the investment cycle is being funded and when it will pay off, rather than as a verdict on demand alone.

Alphabet expects capital spending to continue rising sharply in 2027. Chief Financial Officer Anat Ashkenazi said the company expects its “capital expenditures to increase significantly” that year. She added that more details would be provided during the fourth-quarter earnings call. The guidance puts spending plans at the forefront of investors’ focus ahead of the next results, after the company’s businesses posted mixed performance, with record cloud growth but total revenue below expectations. The fourth-quarter call is the next opportunity the company has identified to provide further details on its spending plans.