Alphabet Loses $500 Billion in Value After Earnings Miss Fuels AI Fears

Alphabet entered its October 28 earnings announcement facing a skeptical market looking for evidence that heavy AI investment would pay off, according to CNBC Technology.

The results showed substantial growth, but not enough to meet expectations. Third quarter revenue rose 25%, while profit fell because of changes in the value of investments, The New York Times reported. That accounting effect was separate from the growing concern about how much cash Alphabet was spending to build AI.

After markets closed on October 28, Alphabet reported revenue of $127.6 billion and earnings of $2.12 per share, below analysts' $3.01 forecast. Shares initially fell 8% in after hours trading, according to Deadline.

Weakness extended across several businesses. YouTube advertising revenue rose 9.2% to $11.21 billion, slowing from 13% growth in the previous quarter and falling short of projections, Variety reported. Google Cloud revenue more than doubled, but that did not compensate for the broader disappointment.

The search business sharpened investors' concerns. The company acknowledged that its AI mode had hurt traditional search, while a $51 billion AI outlay deepened cash burn, according to the Financial Times. On October 29, The Register reported that AI searches earned Google less money than searches served through its traditional advertising model.

Microsoft offered a contrasting picture. Its revenue rose 19% to $92.3 billion, with Azure growing 48%, according to Business Line. Strong cloud growth and cash flow offered some relief from wider fears about AI spending, CNA reported.

Alphabet's selloff intensified during October 29. Shares fell as much as 15.8% during trading, according to NBC News. By the end of the day, CNBC reported a decline of nearly 13%, the stock's worst day ever, and a loss of about $500 billion in market value.

The central problem is not a lack of revenue growth. It is whether Alphabet can preserve the earning power of search while funding the infrastructure needed for AI. Even a doubling of cloud revenue failed to reassure investors worried about making money from search queries, MarketWatch reported.

Alphabet reported more negative free cash flow than analysts expected while maintaining its spending guidance for the year, according to CNBC. The size of the market value loss varies across reports: Forbes put it at $480 billion, while The Wall Street Journal described it as half a trillion dollars.

Google is expanding AI Search advertising globally as growth in its core advertising business slows, TechCrunch reported. The open question is whether those ads can close the revenue gap between AI searches and traditional searches.

Cash generation is the other test. Investors are increasingly focused on companies' ability to fund AI investment from their own cash flows, according to The Economic Times. Alphabet's unchanged spending guidance makes the balance between infrastructure costs and advertising returns a central issue for its next results.