Shares in Google parent company Alphabet tumbled by over 13 per cent on Thursday, dragging down major Wall Street technology indices following an earnings report that intensified investor anxiety over the profitability of heavy artificial intelligence (AI) investments.
The sharp sell-off occurred despite a mixed third-quarter performance where revenue climbed 25 per cent year-on-year to $127.58 billion. However, Alphabet’s net income dropped by 25.2 per cent to $26.17 billion, with diluted earnings per share coming in at $2.12—falling short of Wall Street estimates.
AI Capex and Search Monetization Concerns
The decline in profitability was driven by a combination of surging capital expenditures for AI infrastructure, negative free cash flow, and reduced margins in core Search operations.
Market analysts noted growing concerns that the rapid expansion of generative AI search features could disrupt Google’s traditional, highly lucrative search advertising model. Despite rapid user adoption of Gemini and strong growth in Google Cloud—which saw revenues double to $30.7 billion—investors expressed concern over the delayed timeline for converting massive AI capital investments into immediate free cash flow.
Global Market Reactions & ECB Developments
Alphabet’s slump created a ripple effect across global equity markets:
- Wall Street: The tech-heavy Nasdaq Composite opened 1.4 per cent lower, weighed down by Alphabet’s fall, even as Microsoft posted above-forecast quarterly revenues driven by its Azure division.
- Asian & European Markets: Asian indices closed mixed to lower following semiconductor earnings misses by Samsung Electronics, while European stock markets advanced on strong earnings from energy giants Shell and TotalEnergies.
- European Central Bank (ECB): The ECB kept interest rates unchanged on Thursday, while President Christine Lagarde announced she will step down from her post on February 7, 2027.
- Federal Reserve: The U.S. Federal Reserve maintained benchmark interest rates, citing persistent core inflation at 3.1 per cent year-on-year.
