Alphabet Falls 12.6% in Its Worst Session in More Than 20 Years
Key Facts
Alphabet Class A shares fell 12.6% on October 29, marking their worst daily performance since they began trading more than 20 years ago, according to the Associated Press. GOOGL closed at $284.74, compared with $324.89 in the previous session, according to EL7 data. The Nasdaq Composite fell 1.4% to 26,184.72, while the S&P 500 declined 0.3% to 7,720.39, the agency said. A Reuters report during trading estimated that Alphabet was on track to lose more than $464 billion in market value, as part of a potential loss of more than $500 billion for the Nasdaq-100 if the declines continued. The Associated Press said the U.S. index would have posted gains but for Alphabet's drop, despite four out of five S&P 500 stocks rising.
The decline followed the release of third-quarter results, with Alphabet reporting revenue of $127.6 billion, below analysts' estimates of $128.2 billion, according to Reuters. The agency attributed the shortfall to Google's core advertising business, which generated revenue of $82.01 billion, about $1.41 billion below expectations. While a Reuters report said demand for cloud computing services remained steady, investor concerns focused on whether advertising growth and returns from large AI investments could justify accelerating spending. The stock fell about 13.2% during trading, according to the Reuters report, which linked the pressure to the revenue shortfall and accelerating AI-related cash spending. The core advertising business thus faced pressure as infrastructure expansion required increasing capital commitments.
Spending amplified the impact of the results on cash flows, with negative free cash flow reaching $9.07 billion in the third quarter, after a negative $5.9 billion in the previous quarter, according to Reuters. Analysts had expected free cash flow to approach breakeven, making the gap between actual performance and expectations clearer to investors. The company's purchases of property and equipment also topped $51 billion in the quarter ended before October 29, according to the Associated Press. The agency said concerns included the expected return on AI investments and the cost of borrowing to buy more chips. Alphabet's company-wide activities recorded an operating loss of $7.66 billion, attributed mainly to AI research and development expenses, according to Reuters.
Market trading showed gains broadening beyond the company's shares, rather than a widespread stock selloff. In a Reuters snapshot at 11:49 a.m. Eastern time, advancing stocks outnumbered decliners by 1.97 to 1 on the New York Stock Exchange and 1.5 to 1 on the Nasdaq. Eight of the S&P 500's 11 sectors were trading higher, led by health care and financials, the agency said. After the close, the Associated Press said four out of five stocks in the index had risen, but it failed to post a gain because of Alphabet. The divergence highlights how one company's share-price drop could weigh on the index while most of its constituents were rising.
The broader earnings season was presenting a stronger picture than Alphabet's results alone: 253 S&P 500 companies had reported results through October 29, and 81% of them had exceeded analysts' estimates, according to the latest LSEG data cited by Reuters. Aggregate earnings growth for index companies was estimated at 31.0% year over year in the third quarter, the agency said. On monetary policy, the Federal Reserve left interest rates unchanged the previous day, saying price pressures remained elevated and that it would gather more information before its next decision. Thursday's data showed U.S. inflation accelerated in September, while a preliminary reading indicated the economy grew faster than expected in the third quarter, according to Reuters. Amazon's quarterly results were expected after markets closed on October 29, the agency said.