Alphabet shares tumble 13% as AI-related costs and weaker ad sales hit earnings
Alphabet Inc. reported third-quarter revenue below expectations, with search and advertising sales slowing, leading to a 13% drop in its stock and a market-value loss of more than $500 billion.
Alphabet Inc.’s shares fell more than 13% on Wednesday, erasing over $500 billion from the Google parent’s market value after the company posted third-quarter revenue that missed analysts’ forecasts. Revenue, excluding partner payouts, reached $111.2 billion, while advertising sales from search and other channels grew at the slowest pace in five quarters.
Chief Business Officer Philipp Schindler told investors that the newer AI-driven “AI Mode” tab in Google Search generated lower monetization, though the company plans to increase ad placements in that area. The decline contrasted with rival Microsoft Corp., which reported cloud growth that beat expectations while keeping spending in check.
Google’s overall services revenue for the quarter was $96.3 billion, below the $98.4 billion estimate, and YouTube ad sales came in at $11.2 billion, also missing projections. The firm’s capital-expenditure commitments for computing power, data-center leases and energy total more than $1 trillion, driving a record-high spending outlook.
Analysts noted that two consecutive quarters of negative free cash flow highlight the challenge of monetizing AI investments. “Search still generates the bulk of Alphabet’s cash, and two straight quarters of negative free cash flow show the pure AI math isn’t working right now,” said Anders Bylund of The Motley Fool.
Despite the broader slowdown, Google Cloud posted $30.7 billion in sales and $11.1 billion in profit, beating estimates. The unit’s growth is seen as a key indicator of demand for the company’s AI and hosting services.
Alphabet’s equity investments recorded an $8.7 billion loss, largely tied to its stake in SpaceX, reversing gains from the prior year. Net income fell to $2.12 per share, well under the $2.99 consensus estimate.
CEO Sundar Pichai said the company will roll out additional AI models, including more efficient versions, to help developers optimize for speed and cost across its user base.