Alphabet's 12.6% stock drop weighs heavily on U.S. markets

Alphabet shares fell 12.6% on Thursday, marking their worst single-day performance since trading began more than 20 years ago. The plunge dragged the broader U.S. stock market lower, turning what had been a positive trading session into a loss.

The S&P 500 index dropped 23.59 points to close at 7,720.39. This marked the first decline for the index in four days. The Nasdaq composite fell 365.13 points to 26,184.72, while the Dow Jones Industrial Average lost 132.54 points to end at 52,342.56.

Alphabet, the parent company of Google and YouTube, reported weaker growth for the summer quarter than analysts had projected. The company stated that its cash burn increased because it spent more than $51 billion on property and equipment. Investors are closely watching these figures as they assess whether massive investments in artificial intelligence will generate sufficient returns.

The market reaction highlights growing anxiety within the AI sector. Concerns have risen over the profitability of building data centers and purchasing AI chips. Additionally, the cost of borrowing money to finance these expansions has increased, adding pressure to future spending plans.

Despite the drag from Alphabet, the majority of stocks in the S&P 500 rose. Four out of every five companies in the index gained value. Without Alphabet's drop, the S&P 500 would have finished higher for the day. Several other major companies also posted gains after beating profit expectations.

KLA Corp, which manufactures semiconductor equipment, saw its stock rise 5.5%. Eli Lilly shares climbed 6.6%, and Mastercard increased by 4.2%. DoorDash stock jumped 5.6% after the company announced an agreement to purchase Instacart for $17 billion. Norwegian Cruise Line Holdings shares surged 13.4% following strong summer revenue reports.

In the bond market, the yield on the 10-year Treasury fell to 4.94% from 5.05% the previous day. This decline followed mixed economic data showing that consumer spending and business investment in AI may have accelerated growth, even as income growth slowed and inflation worsened. Brent crude oil prices dropped 0.8% to $110.80 per barrel.