Why Alphabet Shares Fell Nearly 13% After Its Third-Quarter Earnings Report

Alphabet, the parent company of Google, lost about $482 billion in market value after its shares fell nearly 13%, according to The Economic Times. It was the stock's worst trading day since Google went public in 2004.

The drop followed the company's third-quarter earnings report. Investors reacted to softer-than-expected search revenue and weaker free cash flow, even as Google Cloud grew rapidly and the Gemini app passed 1 billion users.

How big was the drop compared with other companies?

The Economic Times, citing a Yahoo Finance report, said it was the second-largest single-day market-value loss for a U.S.-listed company. Only Nvidia's $593 billion loss on Jan. 27, 2025, was larger.

What did Alphabet report for the quarter?

Revenue came in at $127.57 billion, below the Wall Street consensus estimate of $128.2 billion. Earnings per share were $2.12, well under analysts' expectations of $3.02.

Google Cloud was the bright spot. Its revenue rose 103% to approximately $31 billion, more than doubling. Even so, the outlet reported that the gains did not offset worries about the earnings miss and the amount of cash the company is spending.

Why is the search business drawing so much attention?

Search remains a major source of Google's advertising revenue. It grew 12% from a year earlier to approximately $63.4 billion, but analysts had expected $64.9 billion.

The shortfall added to concerns that AI chatbots such as ChatGPT and Claude could challenge Google's position in search. According to The Economic Times, the question is not only whether people use AI tools. Investors also want to know how Google will earn money from searches run through its own AI products.

Jeffrey Wlodarczak, CEO of Pivotal Research, told Yahoo Finance that bearish investors could read the quarter as the first sign that AI was starting to seriously hurt Google's search business.

What is the concern about spending?

Alphabet reported negative free cash flow and has substantial capital expenditure plans, and both remained central worries for investors, the outlet said. The company has been spending heavily on artificial intelligence.

The issue reaches beyond Alphabet. CNBC reported that Microsoft's capital expenditures and finance leases reached $45.2 billion in its latest quarter, up 30% from a year earlier. Microsoft's free cash flow fell 27% to $18.63 billion but stayed positive.

What about YouTube?

YouTube advertising revenue rose 9% to $11.2 billion, according to Alphabet's results. Ads shown on living room televisions made up more than one third of YouTube's ad revenue, and the platform remained the leading streaming service in the U.S. by watch time.

Competition is building, according to Yahoo Finance. Meta's Instagram is testing videos of up to 90 minutes and has announced plans to bring Reels to television screens. The Economic Times said YouTube's results do not remove the concerns about search revenue and AI costs.

Why does it matter?

The reaction suggests investors are looking beyond revenue growth and user counts to the financial cost of the AI build-out. Alphabet faces a balancing act, according to The Economic Times. It needs to build AI-powered search products as user behavior changes while protecting the advertising model that has long supported the business.

The sell-off shows how closely the market is watching whether heavy AI spending can be paired with steady results in core businesses. Cloud growth and Gemini's user milestone were not enough to ease those concerns this quarter.

Around Prague, based on reporting by The Economic Times