Alphabet lost just over $500bn (£374bn) in stock market value on Thursday after the Google parent reported third-quarter profit that fell short of Wall Street expectations and acknowledged that its own AI search features were eating into advertising revenue, BBC News reported. Shares fell more than 12% to a six-month low, taking the company's total market value to $3.46 trillion from $3.97 trillion the day before.
The trigger was a set of results published on Wednesday. Net profit slid 25% from a year earlier to $26.2bn, or $2.12 a share, well short of analyst expectations surveyed by FactSet, according to The Guardian. Revenue rose 25% to $127.6bn, but that too came in slightly below the roughly $128bn analysts had forecast. The National reported that sales excluding partner payouts were $111.2bn against a $111.3bn projection, and that earnings per share of $2.12 fell far below Wall Street's $2.99 estimate.
The advertising slowdown at the centre of the selloff
The most consequential number for investors was in advertising, still the engine that funds everything else Alphabet does. Advertising revenue grew 11% to $82bn, short of expectations, The Guardian reported. Revenue from Google's search business rose 12% to $63.4bn, slowing sharply from 17% growth in the previous quarter. The National put the search and related figure at $63.4bn against an average estimate of $64.9bn. YouTube advertising grew 9% to $11.2bn, down from 13% growth in the prior quarter, though YouTube Music and Premium passed 150 million subscribers worldwide, including trials. The reason matters more than the miss. Philipp Schindler, Google's chief business officer, said the company's "AI mode", which answers questions conversationally, was eating into the money it makes from ads that appear next to results for traditional search queries, according to BBC News. He nonetheless said he felt "very good about our trajectory" with the AI-focused version of the search engine. Kim Scott, who formerly led Google's advertising business, told the BBC's Today programme that the company would "rather eat its own lunch than allow someone else to eat their lunch" by letting its own AI summaries hit search revenue. "I think they're making a long-term bet on AI," she said. That framing is the crux of the investment case now: Alphabet is deliberately trading near-term ad economics for a defensive position against OpenAI and Anthropic, whose chatbots have drawn millions of users away from traditional search.Cloud and chips are growing, but not enough to offset the cost
The counterweight in the quarter was Google Cloud, which rents computing power and AI tools to businesses. Cloud revenue jumped 103% to $30.7bn, ahead of analyst expectations, and operating income for the unit tripled to $11.1bn, The Guardian reported. The National noted that both figures beat estimates of $29.1bn in sales and $9.8bn in profit. Alphabet said sales of its in-house AI chips, known as TPUs, contributed significantly to that growth, and it is now selling those chips to outside companies in a growing challenge to market leader Nvidia. OpenAI reportedly plans to buy some of them, and Anthropic has committed to using up to one million Google AI chips. The problem is scale. Alphabet spent $51.4bn on capital expenditures during the quarter, mostly on datacentres and AI chips, more than double the $24bn a year earlier. Its forecast for 2026 capex is between $195bn and $205bn, and it said it would continue to increase spending significantly in 2027. "I would broadly think of all of this as a long-range planning process, not a short-term allocation exercise," chief executive Sundar Pichai told analysts, according to The Guardian. That spending outstripped the cash generated by Alphabet's businesses for a second straight quarter, leaving a $9.1bn gap, The Guardian reported. The National described the same figure as negative free cash flow of $9.1bn for a second consecutive period. During the quarter Alphabet raised $28.7bn by selling bonds and $12.4bn by issuing new shares to help pay for its AI ambitions.An $8.7bn equity loss compounds the miss
Profit was also dragged down by an $8.7bn loss on Alphabet's equity investments, which it attributed to its stake in SpaceX, the Elon Musk-led company whose shares have struggled since going public in June, according to The Guardian. The National reported that the loss was a sharp reversal from gains a year earlier and in the second quarter, driven largely by stakes in SpaceX and a private company Bloomberg later identified as Anthropic. Elsewhere in the group, the "Other Bets" division, which includes the robotaxi company Waymo, posted revenue of $372m and an operating loss of $2bn. Waymo now provides more than 500,000 paid rides a week across 15 US metropolitan areas and aims to reach 1m weekly rides by the end of the year, The Guardian reported. On the product side, Alphabet launched Gemini 4 at the end of September and later released a version focused on cybersecurity. The Gemini app has reached 1bn users, and Google's AI models now process nearly 32bn tokens per minute, more than four times the level of a year ago, the company said. The National noted that Google has fallen behind Anthropic and OpenAI in developing AI coding tools, and that some employees fear the company has yet to fully catch up.Why It Matters
The selloff is the clearest signal yet that AI search cannibalising advertising is a live business-model risk rather than a hypothetical one. Alphabet's search franchise has funded two decades of expansion; if AI answers reduce the ad inventory and click-through that sit alongside traditional results, the company must replace that revenue while simultaneously funding the datacentres that make the AI answers possible. Tracy Woo, a principal analyst at Forrester, told BBC News that the disappointing Search results "highlights the challenge of funding massive AI investments while maintaining the strength of established businesses." The read-across extends beyond Alphabet. Microsoft and Amazon also issued updates this week and joined Google in plans to keep spending heavily on AI. Amazon's shares fell 6% in after-hours trading alongside quarterly sales growth of 11% to $201bn and negative cash flow of $42bn, while Microsoft's shares fell by less than 1% after revenue grew 19% to $92.3bn and its cloud business grew 30% to $63bn, BBC News reported. Woo said Microsoft's results reinforce that enterprise demand for AI remains strong but "highlight a much bigger question facing the technology industry, where AI value will ultimately be captured".Commercial Impact
For advertisers and media buyers, the quarter suggests the economics of Google search inventory may tighten as AI summaries absorb attention that once flowed to sponsored links. For businesses that depend on search traffic, The National noted that AI-generated answers in response to many searches have major implications for companies that have traditionally relied on the search giant for traffic and advertising revenue. For investors, the central question is whether cloud and TPU sales can grow fast enough to offset a slower search business while capex runs at record levels. For founders building on Google's AI stack, the aggressive chip and cloud build-out is a supply signal; the funding mix of bonds and new shares is a reminder that the build-out is being financed, not simply funded from cash flow.Risks and Unknowns
Alphabet has not disclosed how much ad revenue AI mode displaces, nor how quickly it expects AI search monetisation to close the gap; Schindler's comments indicate awareness of the trade-off rather than a quantified plan. The company's capex guidance for 2027 is directional only. The SpaceX equity loss reflects mark-to-market movements that may reverse. And the competitive picture is unsettled: Google has released Gemini 4 and reached 1bn Gemini app users, but The National reported that it has fallen behind rivals in AI coding tools. Whether the long-term bet pays off before advertising growth slows further is the open question the next several quarters must answer.FY Outlook
The immediate test is whether search advertising growth stabilises after slowing to 12% from 17%. Investors will also watch whether cloud growth is sustained and whether the TPU external-sales strategy gains traction against Nvidia. Alphabet has said it will increase capex significantly in 2027, so the gap between spending and cash generation is likely to persist. The company's argument, articulated by Pichai as long-range planning rather than short-term allocation, will be judged against quarterly advertising numbers. A US judge's September decision declining to order a break-up of Google's advertising technology business, imposing restrictions instead, removes one structural overhang but leaves the operating restrictions in place.Sources and References
- The Guardian (theguardian.com) — Google owner Alphabet loses $500bn in market value after profit disappoints Wall Street
- BBC News (bbc.co.uk) — Google value plunges by $500bn as its own AI search hits ad sales
- The National (thenationalnews.com) — Alphabet stock drops after profit and sales fall
