Alphabet shares tumble 13% after weaker profit and AI spending concerns
Alphabet Inc.'s stock fell more than 10% after reporting lower-than-expected profit and a slowdown in search growth while maintaining large AI investments.
Wall Street opened lower on Thursday, with the tech-heavy Nasdaq Composite down 1.4%, as investors sold shares of Alphabet, the parent company of Google, following the release of earnings that missed profit expectations. The company said free-cash-flow had fallen sharply and that growth in its core search business was slowing, even as it continued to spend heavily on artificial-intelligence initiatives.
"The stock quickly fell over 10 percent as investors clocked a sharp drop in free cash flow, along with a slowdown in Google's search engine growth," said Trade Nation analyst David Morrison.
The decline added to broader market weakness after a mixed performance in Asian markets and a modest advance in European indices, where the European Central Bank left rates unchanged. European markets were buoyed by strong corporate results, according to AJ Bell investment director Russ Mould.
Oil majors Shell and TotalEnergies posted strong earnings, supporting gains in London and Paris, while crude prices slipped about 2% after reports of renewed diplomatic talks between the United States and Iran.
In contrast, Samsung Electronics reported record quarterly profit but missed expectations in its semiconductor division, contributing to a 1.2% drop in South Korea's Kospi index. Meanwhile, Microsoft posted revenue and profit that beat forecasts, helped by its Azure cloud business, and its shares rose 0.8%.
Analysts noted that concerns about the profitability of AI-driven search could pressure Google's advertising revenue, a key source of earnings. The market also awaited upcoming earnings reports from Amazon and Intel later in the day.
The Federal Reserve kept interest rates steady, citing the need for more data on inflation, which remains above the central bank’s 2% target. Core personal consumption expenditures rose 3.1% year-on-year in September, and eToro US analyst Bret Kenwell said the data underscored persistent inflation pressures.
Despite the mixed corporate news, the U.S. economy grew at an annualised 3.4% rate in the third quarter, beating expectations.