Alphabet shares tumble 12.6% as AI spending sparks cash‑flow worries

Alphabet's shares dropped 12.64% on the Nasdaq Thursday, wiping about $482 billion of market value and marking the steepest one‑day fall since the company went public in 2004. The stock closed at $283.82 and slipped further to $282.64 in Friday’s pre‑market trade. The tumble followed the release of quarterly results that showed revenue up 25% year‑on‑year to $127.6 billion, but net profit falling to $26.5 billion from $35 billion a year earlier. Operating earnings rose 30% to $40.6 billion. Google Cloud posted a bright spot, with revenue more than doubling to $30.7 billion, a 103% jump, and operating income climbing to $11.1 billion from $3.6 billion. To support this growth, Alphabet spent $51.4 billion on capital expenditure, mainly data centres, servers and networking gear, leading to negative free cash flow of $9.1 billion. CFO Anat Ashkenazi said the outflow was driven by infrastructure spending, inventory buildup for Tensor Processing Units and a $5.2 billion European Commission fine. The company kept its 2026 capex outlook of $195‑205 billion, noting that the September spend represented about a quarter of the full‑year target and that spending would rise sharply in 2027. Advertising revenue from Google Search grew 12% to $63.35 billion, slower than the 17% rise in the prior quarter, as AI‑powered Search queries generate lower ad earnings. Senior VP Philipp Schindler blamed the shift to AI Mode, foreign‑exchange moves and slower retail and media advertising for the slowdown. CEO Sundar Pichai highlighted that overall Search queries grew at the fastest annual rate in five years, boosted by the firm’s AI push. ## Context The surge in AI‑focused infrastructure is a common trend among tech firms, but the high upfront costs can strain cash flow until new AI services start delivering strong ad or cloud revenue.