Alphabet loses $500bn in value as AI spending collides with weaker search growth

Alphabet lost about $500bn in market value after investors reacted sharply to weaker-than-expected profit, slower advertising growth and the cost of its artificial-intelligence expansion. Sky News described the fall of more than 12% as the company’s worst day on the US stock market, while the Guardian reported that the decline erased hundreds of billions of dollars from the roughly $4tn technology company. Alphabet, Google’s parent company, reported quarterly revenue of $127.6bn, up 25% from a year earlier.

But net profit fell 25% to $26.2bn, below analysts’ expectations, according to the Guardian. The company also booked an $8.7bn loss on equity investments, which it attributed to its stake in SpaceX. Advertising revenue increased 11% to $82bn, while search revenue rose 12% to $63.4bn.

The Guardian said search growth had slowed from 17% in the previous quarter. The BBC reported that Google’s AI summaries, which now appear by default for many queries, were affecting the number of advertisements it could sell alongside search results. Advertising remains Alphabet’s principal source of income.

The company’s other results were stronger. Google Cloud revenue more than doubled to $30.7bn, according to the Guardian, while the BBC put the figure at almost $31bn. Operating income for the unit tripled to $11.1bn.

Alphabet said sales of its own artificial-intelligence chips, known as TPUs, contributed significantly to the cloud growth, and it is selling the chips to outside companies. Alphabet’s spending, however, has risen rapidly. It spent $51.4bn on capital expenditure during the quarter, mostly on data centres and AI chips, more than twice the $24bn spent a year earlier.

The company forecast 2026 capital spending of between $195bn and $205bn and said spending would continue to increase significantly in 2027. That investment left Alphabet with negative free cash flow of $9.1bn, its second consecutive quarterly gap, the Guardian reported. The BBC said the company’s spending was almost entirely directed towards AI.

Alphabet raised $28.7bn through bond sales and $12.4bn by issuing new shares to help finance its plans. Chief executive Sundar Pichai defended the spending as a long-range planning process rather than a short-term allocation exercise. Google’s chief business officer, Phillip Schindler, said he felt “very good about our trajectory” with an AI-focused search engine.

Forrester analyst Tracy Woo said the results highlighted the difficulty of financing large AI investments while preserving established businesses. The reaction extended across the technology sector. Amazon shares fell 6% in after-hours trading after the company reported $201bn in quarterly sales but negative cash flow of $42bn.

Microsoft’s shares fell by less than 1%; its revenue rose 19% to $92.3bn and cloud revenue reached $63bn. Microsoft also reported lower AI investment than previously planned, while chief executive Satya Nadella said daily Copilot users had risen 500% from a year earlier.