Shares of Alphabet, the parent company of Google, crashed 13% in Thursday’s trade on October 29, falling to an intraday low of $280 apiece, as Wall Street was disappointed with the company’s September-quarter performance, particularly in its core search advertising business, while its cash burn extended into the second quarter.
If sustained through the close, the decline would mark the stock’s worst single-day drop since it began trading more than 20 years ago. Google and other hyperscalers have been burning cash to build AI infrastructure, and the results have underscored concerns over whether their massive investments in artificial intelligence (AI) technology will pay off.
Concerns are mounting that the AI revolution may not deliver the levels of profitability and productivity gains investors had hoped for. Future spending is also facing scrutiny amid rising borrowing costs and the growing expense of building AI infrastructure.
Alphabet is one of the most influential stocks on Wall Street, and its sharp decline also dragged the Nasdaq Composite down 1.4% to its intraday low.
The company behind Google and YouTube said late Wednesday that it had burned through more cash during the latest quarter, as measured by free cash flow, after its purchases of property and equipment exceeded $51 billion.
Alphabet’s AI spending drives free cash flow into negative territory
The Mountain View, California-based company reported a negative free cash flow of $9.1 billion, compared with analyst expectations that it would come close to breaking even, according to LSEG data.
Aggressive efforts to expand cloud capacity and fund AI development led Alphabet to burn $5.9 billion last quarter, marking the first time its free cash flow had turned negative in 22 years as a public company, Reuters reported.
The results reflect the enormous costs of the AI infrastructure buildout, with investors concerned about both the risk of overspending and the possibility of falling behind rivals by not investing enough.
Moreover, Alphabet still plans to significantly increase its capital expenditure in 2027 from this year’s forecast of $195 billion to $205 billion, Chief Financial Officer Anat Ashkenazi told analysts during a conference call.
Total revenue also missed Wall Street’s expectations. Although revenue growth at Google Cloud outpaced estimates, it was not enough to offset a $1.4 billion shortfall in advertising revenue. Alphabet’s second consecutive quarter of negative free cash flow marks a sharp reversal for a company that was long one of the technology sector’s most prolific cash generators.
While executives did not provide a specific figure for 2027 capital expenditure, investors remained concerned about a potentially substantial increase.
Google Cloud offset weaker advertising revenue
Alphabet sought to counter the disappointing advertising performance by highlighting its cloud computing business, with revenue more than doubling to $30.7 billion, up 103% from the year-ago period.
The company said the growth was driven by strong demand for AI infrastructure and solutions, core cloud services, and its tensor processing unit (TPU) systems.
Google Cloud’s operating income climbed to $11.1 billion from $3.6 billion in the same quarter last year, according to the company’s earnings release.
Meanwhile, revenue from Google Services grew 11% to $96.3 billion, supported by a 12% increase in Google Search and other revenue to $63.4 billion.
Chief Executive Officer Sundar Pichai said AI investments were contributing to growth in overall search queries, including commercial searches. He added that the year-on-year growth rate in search queries had reached its highest level in five years.
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