Search revenue growth slows to 12% as Google Services misses estimates
Alphabet shares fell sharply Thursday in the company’s worst day on record, erasing roughly $500 billion from the Google parent’s market value a day after its third-quarter report came in short of expectations. The slide weighed on major U.S. stock indexes, fueling a decline in the Nasdaq composite and amplifying fears that the costs of the global AI build-out may be outrunning the returns.
The tech-heavy Nasdaq composite stood at 26,549.85 as of Oct. 29, according to Federal Reserve Economic Data.
Alphabet reported Wednesday that Google Services, the unit that spans search advertising, YouTube and subscriptions, generated $96.3 billion in the third quarter, below the $98.5 billion that analysts expected. The miss signals that Google’s biggest revenue engine is slowing as internet habits change and AI reshapes how consumers search for information and products.
Google also reported operating expenses that came in higher than expected and negative free cash flow, underscoring the heavy costs of securing data center capacity and developing new AI models.
Google Search revenue grew 12% year over year in the third quarter, down from 17% growth in the second quarter and 19% in the first. The slowdown highlights the challenge facing the company: how to remake its cash-cow search business around AI without cannibalizing it.
The shortfall unsettled Wall Street, where investors had backed Big Tech’s AI spending in part because core businesses at companies like Google, Microsoft and Amazon.com have been reliable profit generators. “One of the companies most aggressively investing in AI to protect its core businesses showed vulnerability to AI,” Mike O’Rourke, chief market strategist at JonesTrading, said of Google’s report. “That’s why people are disappointed.”
Thursday’s decline was stark enough that Alphabet’s stock completed a so-called death cross, a market pattern in which a stock’s 50-day moving average drops below its 200-day moving average. Some analysts view that severe loss of momentum as a signal that the price has further to fall.