Alphabet’s 12.6% Drop Spotlights Big Tech’s AI Spending
Key Facts
Alphabet Class A shares fell 12.6% in the October 29 session, their worst daily performance since they began trading more than 20 years ago, according to the Associated Press. The decline came after the company reported quarterly revenue below analyst expectations, while concerns grew over whether AI investments can generate returns commensurate with their cost. The Nasdaq Composite fell 1.4% and the S&P 500 slipped 0.3% in the same session. In after-hours trading, Amazon shares fell 7% after its results, as investors focused on AI-related spending and cash depletion. Amazon shares closed at $243.79, and Alphabet shares listed under the ticker GOOGL closed at $283.82, according to EL7 data.
The company attributed this mainly to increased purchases of property and equipment tied to AI investments. At the same time, CEO Andy Jassy said the company still expects capital spending of about $220 billion during 2026, most of it going toward building AI data centers. This places continued infrastructure investment alongside liquidity pressures that have led investors to focus on the cost of expansion.
Amazon expects fourth-quarter sales of between $240 billion and $247 billion, up 12% to 16% year over year, while the average analyst estimate is $244.16 billion, according to the company and the Associated Press. The guidance range puts the low end below analyst estimates and the high end above them, with revenue growth still expected. In cloud computing, a source cited by the Associated Press said AWS sales could grow 40% in each of the next two years. The source added that the unit could become a business with revenue exceeding $1 trillion within five to ten years. These projections indicate the scale of the bet on cloud demand as the market weighs investment returns against ongoing cash spending.
On the other hand, Alphabet’s consolidated revenue rose 25% to $127.6 billion in the third quarter, marking the thirteenth consecutive quarter of double-digit year-over-year revenue growth, according to the company’s filing with the U.S. Securities and Exchange Commission. The company said the annual growth rate in Search queries was the highest in five years. Consolidated operating income rose 30%, while the operating margin was 31.8%. These figures show growth broadening across core services alongside the expansion of its cloud business, despite the stock’s negative reaction.
Google Cloud revenue rose 103% to $30.7 billion, a record increase, according to Alphabet. The company said growth drivers included infrastructure and enterprise AI solutions, core GCP services, as well as sales of TPU systems. Reuters reported that Alphabet does not break out TPU chip revenue or margins, but described their sales as an important contributor to Google Cloud growth. Chief Financial Officer Anat Ashkenazi said unsold TPU systems are now appearing in inventory balances, changing the cash flow generation cycle. Google Cloud said sales of TPU systems, which combine chips with networking, storage and software, are expected to rise in the current quarter and accelerate clearly in 2027.
Alphabet’s purchases of property and equipment totaled $51.4 billion in the third quarter, compared with operating cash flow of $42.3 billion, according to the company’s filing. Reuters noted that the company reiterated that spending on AI infrastructure would rise sharply in the following year, while the stock fell about 11% in the October 29 session after another quarter of cash depletion. In its account of the market move, the Associated Press said investors are watching to see whether large AI investments will pay off, and also pointed to the cost of borrowing to buy more chips. The Nasdaq closed down 1.4% and the S&P 500 fell 0.3%, in a session when pressure spread across U.S. stock indexes.