Google parent Alphabet’s shares plunge 12.6% as investors question returns from AI spending

Shares of Google parent Alphabet fell 12.64% on the Nasdaq on Thursday (October 29, 2026), closing at $283.82. The decline wiped out about $482 billion in the company’s market value, marking its worst one-day fall since it began trading in 2004, according to reports.

Alphabet shares remained under pressure in Friday’s (October 30, 2026) pre-market trading, slipping a further 0.42% to $282.64, according to Yahoo Finance.

The sell-off came after the company reported its quarterly results, renewing concerns about whether its heavy investments in artificial intelligence (AI) will generate enough returns.

Alphabet’s revenue grew 25% year-on-year to $127.6 billion in the quarter ended September 30. Its net profit fell to $26.5 billion from $35 billion a year earlier, largely due to losses on its equity investments. However, earnings from its business operations rose 30% to $40.6 billion.

Google Cloud was a bright spot. Its revenue more than doubled to $30.7 billion, up 103% from a year earlier. The division’s operating income rose to $11.1 billion from $3.6 billion. Alphabet attributed the growth to demand for AI infrastructure and solutions, as well as its core cloud services.

But the investment needed to support this growth is putting pressure on the company’s cash flow. Alphabet spent $51.4 billion on capital expenditure in the September quarter, mainly on data centres, servers and networking equipment. The company said most of this spending went towards technical infrastructure to support its AI investments.

Alphabet generated $42.3 billion in cash from its business operations during the quarter. Since its capital expenditure was higher than the cash generated, it reported negative free cash flow of $9.1 billion.

Chief financial officer Anat Ashkenazi said infrastructure spending was a major reason for the negative free cash flow. She also pointed to inventory being built up for sales of Google’s own AI chips, called Tensor Processing Units (TPUs), and a $5.2-billion payment relating to a European Commission fine.

Alphabet retained its capital expenditure guidance of $195 billion to $205 billion for 2026. The $51.4 billion spent in the September quarter was roughly a quarter of its projected full-year expenditure. Ms. Ashkenazi said capital expenditure would increase significantly in 2027, indicating that the high spending is likely to continue.

Investors are also watching how AI is changing Google’s main Search advertising business. Revenue from Google Search and related advertising grew 12% to $63.35 billion in the quarter, slower than the 17% growth in the previous quarter. This is part of Google’s total advertising revenue of $82 billion, which also includes advertisements on YouTube and the Google Network.

During the October 28 earnings call, Philipp Schindler, Google’s senior vice-president and chief business officer, said the growing number of queries through AI Mode, the company’s AI-powered search service, was affecting advertising revenue. Google earns less from these queries than it does from traditional Search.

Mr. Schindler said Google was experimenting with advertisements in AI-powered Search features, including AI Overviews and AI Mode. He also said foreign exchange movements were the single biggest factor behind the slowdown in Search revenue growth compared with the previous quarter. Advertising trends in the retail and media and entertainment sectors also played a role.

At the same time, people are using Search more. Chief executive Sundar Pichai said the year-on-year growth in Search queries was the highest in five years. He added that Google’s AI investments were helping drive this increase, including in commercial queries.