Alphabet shares tumbled 13 per cent on Thursday, wiping a record $500 billion (€443 billion) from its market value, after the Google owner burned through cash last quarter and revealed that “AI mode” searches were threatening profits at its core advertising business.
The plunge in the stock reverberated across markets, as the tech-heavy Nasdaq fell 1.4 per cent in early trading.
If the decline holds through to the close of trading, it would represent the second-biggest daily drop in market value in Wall Street history, after Nvidia’s $593 billion rout in January 2025.
The Silicon Valley group’s cash flow fell deeper into negative territory in the three months to the end of September, reaching minus $9.1 billion, as it lifted its AI spending to more than $50 billion in the quarter.
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The figure, which surpassed analysts’ forecasts, marked only the second quarter of negative cash flow since Google went public in 2004. It also comes as investors grow increasingly wary of whether the historic AI investment boom will pay off.
Analysts also flagged weakness in Google’s core search advertising business in third-quarter results that Alphabet released after the stock market closed on Wednesday.
Revenue in its largest division increased 12 per cent year on year to $63.4 billion, missing estimates for $64.9 billion and slowing from a near 20 per cent annual growth rate earlier in the year.
Philipp Schindler, chief business officer at Google, admitted ‘AI mode’ queries – which provide conversational text answers rather than a list of links – were eating into traditional search and led to “lower monetisation” via ads.
“Search is where the concern sits,” said David Wagner, head of equities at Aptus Capital Advisors. “In a market worried about AI chatbots cannibalising its key franchise, investors need to see it accelerating, not decelerating.”
The shift to burning cash has been caused by historic capital expenditure on AI as Alphabet makes an all-in bet on the transformational potential of the nascent technology.
Capex grew to $51.3 billion in the quarter, up from $44.9 billion in the second quarter. Chief financial officer Anat Ashkenazi reiterated that capex would reach as much as $205 billion this year, implying that spending in the fourth quarter could be as high as $73.1 billion.
Google disclosed it has made future commitments for data centre purchases, leases, equipment, energy and other obligations in excess of $1 trillion.
To back the spending spree, Alphabet has taken on tens of billions in debt and in June announced plans to raise about $85 billion in its first share sale in more than two decades – a sharp reversal after years of buying back its own shares.
In contrast, Microsoft received a warmer reception after strong growth in its Azure cloud unit helped revenue and profit beat estimates. While capex rose to $45.2 billion, the company still reported free cash flow of $18.6 billion.
Microsoft shares were 1 per cent higher in early trading on Thursday.
“Markets are carefully calibrating the trade-off between capex and free cash flow,” said Dec Mullarkey, managing director at asset management firm SLC Management. “Microsoft is a standout on cash discipline, while delivering on growth. Google fell short, and cash flow is expected to be a drag through next year.”
Alphabet’s revenue increased 25 per cent to $127.6 billion in the quarter, also falling slightly short of the average analyst forecast compiled by Factset.
Net income fell 25 per cent to $26.2 billion compared with the same period a year earlier, far from analysts’ expectations of $37.3 billion.
That figure has been affected by changes in the value of Alphabet’s investments, which include a stake in SpaceX. Elon Musk’s rocket maker fell about 4 per cent during the period, contributing to an $8.7 billion net loss on equity investments.
Operating income, which does not include investment losses, rose 30 per cent to $40.6 billion but missed Wall Street’s expectations for $43.2 billion.
Ashkenazi noted that a $5.2 billion cash payment to settle a 2018 European regulatory fine contributed to the more deeply negative cash flows. Google recently lost an appeal against a verdict that it engaged in anticompetitive behaviour via its Android operating system.
Offsetting the gloom in search, Alphabet’s cloud business doubled its sales to $30.7 billion, benefiting from surging customer demand for its own AI services as well as selling computing capacity to rivals such as start-up Anthropic.
Google has touted its “full-stack” AI strategy as a big strategic advantage, developing its own chips, data centres and frontier models, which are then delivered to billions of loyal consumers via its established apps and services.
Chief executive Sundar Pichai has been criticised for being slow to deploy AI and allowing a company of Google’s scale to fall behind start-ups such as Anthropic and OpenAI in the lucrative enterprise sector.
Pichai said two new versions of its most advanced Gemini models – Argon and Carbon – have closed the gap in coding, finance and cyber security and should help Alphabet win back market share. – Copyright The Financial Times Limited 2026
