Alphabet shares hit record low as AI competition pressures search revenue

Alphabet experienced its worst single day in trading history on Thursday, October 29, when the company lost $500 billion in market value. The stock price fell by 13 percent, a decline attributed by the Wall Street Journal to investor concerns regarding the impact of artificial intelligence on the firm’s core business. This sharp drop followed the release of the company’s quarterly results on Wednesday, October 28, which highlighted slowing growth in key revenue areas and increased operational costs.

The third-quarter figures indicated that Google Search revenue growth had decelerated to 12 percent year over year, down from 17 percent in the previous period. Analysts suggest this slowdown reflects a shift in consumer behaviour, with users increasingly turning to AI chatbots for product searches rather than the traditional search engine. Additionally, the report revealed higher-than-expected operating expenses and negative free cash flow, which the Wall Street Journal linked to significant spending on AI models and data centres. Bloomberg noted that third-quarter sales of $111.2 billion missed analyst expectations, while ad sales grew at the slowest pace in five quarters. The company’s future obligations for data centres, computing power, and energy have now surpassed $1 trillion.

Alphabet reported negative free cash flow for the second consecutive quarter, a first since the company went public. Despite these challenges, Google Cloud outperformed forecasts in both sales and profit, with customers including Anthropic and other AI competitors. However, a quarterly filing disclosed that more than a third of the growth in cloud services stems from a partially owned joint venture. The broader market reacted negatively to the results, with the three major US equity indexes losing ground and the tech-focused Nasdaq experiencing the steepest decline. PYMNTS reported that the company spent $51.4 billion on capital investments and recorded a negative free cash flow of $9.1 billion, renewing concerns that Big Tech AI spending may outpace the earnings and cash flow required to justify such expenditures.