Alphabet, Google’s parent company, has lost more than $500 billion in market value after its shares plunged 13 percent following disappointing third-quarter results which raises concerns about whether its growing investments in artificial intelligence (AI) can offset pressure on its core search advertising business.
The company’s shares fell 13 percent to $281.37, wiping approximately $511 billion off its market capitalisation as of 9:35 a.m. in New York, according to Bloomberg.
The decline followed revenue and earnings figures that fell short of analysts’ expectations, intensifying investor concerns about the cost of Google’s AI ambitions and their impact on its established businesses.
Alphabet reported third-quarter sales of $111.2 billion, excluding payments to distribution partners, below market expectations. Revenue from search and other advertising channels, which accounts for roughly half of the company’s overall revenue, also missed forecasts, recording its slowest growth in five quarters.
The results highlight a growing challenge for Google as consumers turn to AI-powered tools, including ChatGPT and Claude, for information and assistance. The shift threatens the advertising model that has financed much of the company’s expansion and now must support its substantial spending on AI infrastructure.
Philipp Schindler, Google’s chief business officer, told investors that the growing popularity of AI Mode, a new feature within Google Search, had affected the company’s results.
He said AI queries currently generate less advertising revenue, although the company plans to introduce more advertising opportunities within the feature.
For years, Google executives have maintained that AI chatbots and search features would not significantly undermine its search business.
However, the latest results suggest that the transition to AI-powered search could complicate the company’s efforts to preserve its advertising revenue while changing how users find information online.
Google’s services division generated $96.3 billion in revenue, below analysts’ estimates of $98.4 billion. YouTube advertising revenue also missed expectations, coming in at $11.2 billion.
The weaker performance has increased scrutiny of chief executive officer, Sundar Pichai’s strategy to invest heavily in AI while maintaining growth in the company’s established businesses.
Alphabet has projected capital expenditure of up to $205 billion for the year, more than double its spending in the previous year, as it builds data centres and expands the computing capacity needed to develop and deploy AI products.
The scale of its commitments is becoming a concern for investors. By the end of the third quarter, Alphabet’s future commitments to purchase resources such as computing power and energy had reached $924 billion.
Additional obligations, including leases for data centres that have yet to commence, totalled $152 billion, taking its future commitments to well over $1 trillion.
Alphabet also recorded negative free cash flow for the second consecutive quarter, a development that has raised questions about the financial returns from its AI investments.
Despite the pressure on its core businesses, Google Cloud delivered a stronger performance. The division reported third-quarter revenue of $30.7 billion and profit of $11.1 billion, surpassing analysts’ estimates of $29.1 billion in revenue and $9.8 billion in profit.
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The results point to continued demand for Google’s cloud computing and AI infrastructure services, even as the company faces challenges monetising AI within its own consumer products.
Some of its major cloud customers, including AI startup Anthropic, also compete with Google in developing AI models and assistants.
Alphabet’s bottom line was further affected by losses on its equity investments. The company reported an $8.7 billion loss on those holdings, largely linked to its investment in SpaceX, reversing gains recorded in the previous year. Net income per share came in at $2.12, below Wall Street’s estimate of $2.99.
Google has been redesigning Search, YouTube and Gmail around AI to retain users and remain competitive as generative AI tools change how people interact with digital services. Its search engine now provides AI-generated answers to many queries, a shift that is also affecting businesses that depend on Google for website traffic and advertising visibility.
The challenge for Alphabet is to ensure that these AI-powered experiences generate sufficient revenue to justify the infrastructure costs while protecting the advertising business that has historically funded its growth.
Hours before its earnings call, Google announced another AI model, Carbon, as it seeks to accelerate development and respond to competition from OpenAI and Anthropic.
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Pichai told analysts that more models were coming, including more efficient versions designed to help developers optimise speed and cost and deploy AI across Google’s billions of users.
The latest results have left investors weighing the promise of Google’s AI business against the immediate financial pressure of building it.
Folake Balogun is a technology journalist covering Africa’s digital economy, with a focus on startups, fintechs, venture capital, artificial intelligence, and emerging technologies. Her work explores the intersection of technology, business, and society, highlighting how innovation is reshaping industries and everyday life across Africa and global markets. She translates complex trends into insightful and impactful stories for a wider audience.
