Alphabet Shares Crash 13%, Wiping Out $500 Billion As Google Ad Growth Slows

Alphabet shares plunged more than 13% in early trading on Thursday after the Google parent reported lower-than-expected sales and a slowdown in its advertising business, fuelling investor concerns over its heavy spending on artificial intelligence (AI).

Around five minutes into trading, Alphabet shares stood at $279.43, down 13.2%. All three major US stock indices were also trading in the red despite stronger-than-expected US economic growth data.

The sell-off wiped more than $500 billion off Alphabet's market value, marking its biggest-ever loss in market capitalisation. By 9:35 am in New York, shares were down 13% at $281.37, erasing around $511 billion in market value.

The decline followed disappointing search and advertising results, reinforcing concerns about the potential impact of AI on Google's core business.

Google Advertising Growth Slows

Alphabet reported third-quarter sales, excluding payments to distribution partners, of $111.2 billion, falling short of analysts' expectations. Advertising revenue from search and other channels, which accounts for roughly half of the company's overall revenue, also missed forecasts.

Advertising growth slowed to its weakest pace in five quarters, putting pressure on a business that remains crucial to funding Alphabet's massive AI investments.

The results highlighted the risks of heavy spending on AI infrastructure at a time when the company's core advertising business faces growing competition.

The results and the market reaction “show us the margin for error when a hyperscaler spending hundreds of billions on the AI infrastructure buildout” posts disappointing results in its core business, JPMorgan analysts, including Doug Anmuth, said in a note.

Alphabet's performance contrasted with that of Microsoft, which reported stronger-than-expected growth in its cloud business while keeping spending in check, prompting a rally in its shares.

Google's AI Push Faces Monetisation Challenge

Alphabet Chief Business Officer Philipp Schindler said during an earnings call late Wednesday that the growing popularity of AI Mode, a new tab in Google Search, had affected the company's results.

AI queries have “lower monetization,” Schindler said, adding that the company remained optimistic and planned to introduce more advertisements in that part of its search engine.

Google executives have long argued that AI chatbots and features would not significantly undermine its search business. However, investors have become increasingly concerned as consumers turn to alternatives such as ChatGPT, Claude and Google's own AI tools.

The concerns have put pressure on Alphabet CEO Sundar Pichai to demonstrate that the company's substantial investments in AI can generate sustainable returns.

Google is facing more than $1 trillion in future payments for resources such as data centres, computing and energy to support its AI ambitions.

Analysts Warn Of Pressure On Alphabet's AI Investments

The sharp decline has intensified scrutiny of Alphabet's ability to turn its AI investments into a sustainable source of revenue while maintaining growth in its core businesses.

“This quarter feels like a moment of truth for Alphabet: Either Pichai and his team fix the way the company monetizes AI, or the giant risks losing its leadership in several of its core businesses in the near future,” said Thomas Monteiro, senior analyst at Investing.com.

“Until Google shows it can charge for AI the way it once charged for search ads,” he said, every capital spending forecast it issues is going to “read less like ambition and more like a bill.”