Alphabet heads for record one-day loss after search miss

Alphabet ↘ 1.45% shares fell about 13% Thursday, October 29, after its third-quarter report. The drop put the Google parent on track to lose about $488 billion in market value, according to Dow Jones Market Data cited by MarketWatch News Corp ↘ 1.37%. That would be the stock's worst day since it went public in 2004 and the second-biggest one-day loss in value ever for a US-listed company. Only Nvidia ↘ 4.22% has lost more, about $593 billion on Jan. 27, 2025, Yahoo Finance reported.marketwatch.com+1

The sell-off pulled the Nasdaq Composite and S&P 500 ↘ 1.77% lower in morning trading and brought back worries about AI spending, according to Invezz.invezz.com

Search misses as AI Mode grows

Search revenue came in below forecasts, partly because "AI mode" searches are growing fast and earn less than traditional searches, The Wall Street Journal reported. Alphabet also burned through cash faster than Wall Street expected. Search and other advertising revenue grew 12% to $63.3 billion. Analysts had expected about $65 billion, and growth slowed from 19% in the first quarter (Yahoo Finance; Fortune). On the earnings call, Chief Business Officer Philipp Schindler named currency effects as the biggest factor in the slowdown. Weakness in certain ad categories and strong growth in low-earning AI Mode queries also weighed on results, according to a call summary.finance.yahoo.com+3

Free cash flow was negative $9.07 billion. Alphabet kept its full-year capital spending forecast of $195 billion to $205 billion. Capital spending reached $51.4 billion in the quarter, and Fortune reported that spending is expected to rise to $300 billion in 2027. Earnings per share fell to $2.12 from $2.87, partly because of an $8.7 billion paper loss on equity investments.fortune.com+1

Cloud strength not enough

Total revenue rose 25% to $127.6 billion. Google Cloud revenue rose 103% to $30.7 billion, and the Gemini app passed 1 billion users (Alphabet's earnings release; Yahoo Finance). Strong cloud results were not enough to make up for the weaker ad business, Reuters Thomson Reuters Corporation ↗ 1.63% reported. Bloomberg said ad sales from search grew at their slowest pace in five quarters.bloomberg.com+3

Divided Wall Street

"The bears will argue this is the first quarter that AI is starting to seriously hurt their search business," Pivotal Research CEO Jeffrey Wlodarczak said. CFRA's Angelo Zino called the pullback "probably" a buying opportunity. Aptus Capital Advisors' David Wagner said Cloud did its job. "The problem is everything else," he wrote.finance.yahoo.com+1

Investors now turn to Amazon Amazon.com, Inc. ↘ 1.41%, which reports after Thursday's close. Earlier, Microsoft ↘ 1.55% shares rose after strong Azure growth. Another quarter of cash burn at Amazon "would put the whole AI spending trade back on the defensive," Yahoo Finance noted.invezz.com+1