Alphabet Earnings: Stock Plunges 12.2% on AI Spending Concerns

Alphabet's stock fell 12.2% on Thursday, a decline that is on track to be the company's worst since it began trading more than 20 years ago. The drop dragged the broader U.S. market lower as investors reacted to the company's summer financial report. The loss reflects growing doubts about whether the massive capital expenditure required for artificial intelligence will generate sufficient returns.

The S&P 500 index declined by 0.4%, marking its first loss in four trading days. The Nasdaq composite fell 1.4% during the session. In contrast, the Dow Jones Industrial Average slipped just 0.3%, or 160 points, as of 10 a.m. Eastern time. Analysts noted that the S&P 500 would have finished higher on the day had it not been for the steep decline in Alphabet shares.

Alphabet reported late Wednesday that its free cash flow decreased during the latest quarter. This metric declined because the company's purchases of property and equipment totaled more than $51 billion. The figures indicate that the firm is converting cash into physical assets at a rapid pace, a trend that has raised questions among market participants regarding the timeline for profitability in its AI initiatives.

The pressure on Alphabet is part of a wider scrutiny facing the technology sector. Concerns persist that the current wave of data center construction and AI chip acquisitions may not yield the expected productivity gains. Additionally, rising costs for borrowing money are adding strain to future spending plans. These factors are weighing on sentiment across the AI industry, not just for Alphabet.

Several other companies posted positive results, offsetting some of the market's losses. KLA Corp, a semiconductor equipment maker, rose 6.4% after reporting stronger summer profits than expected. Eli Lilly shares climbed 7.8%, while Mastercard gained 4.7% and Merck added 5%. These gains demonstrate that strong earnings reports can still drive individual stock performance regardless of the broader market mood.

DoorDash shares increased 5.8% following an announcement that the company agreed to acquire Instacart at $65 per share. However, DoorDash also disclosed that its profit and revenue for the latest quarter missed analyst expectations. The mixed news resulted in a net positive reaction from investors, driven by the strategic acquisition rather than the quarterly performance metrics.

In the bond market, Treasury yields eased after mixed economic data released earlier in the week. Preliminary data suggests that U.S. economic growth may have accelerated more than expected in the summer, fueled by consumer spending and business investment in AI. However, reports indicated that income growth for Americans was weaker than projected in September, and one measure of inflation worsened.

The yield on the 10-year Treasury fell to 4.98% from 5.05% late Wednesday. This level matches where the yield stood early Wednesday, before traders began interpreting recent Federal Reserve messages as potential signals of slower interest rate hikes. The 10-year yield was also helped by a 2.1% drop in Brent crude oil prices, which fell to $109.26 per barrel. Fewer U.S. workers applied for unemployment benefits last week, a sign that layoffs remain limited despite the mixed economic signals.