Alphabet shares dropped more than 13 percent on Thursday, erasing roughly $511 billion in market value, after third-quarter results showed the company’s core advertising engine losing momentum just as its artificial intelligence investment bill tops $1 trillion.
The numbers that mattered
Revenue excluding traffic-acquisition costs came in at $111.2 billion, below analyst estimates. Search and other advertising sales, the segment that funds the AI buildout, grew at the slowest pace in five quarters. YouTube ad revenue of $11.2 billion also missed. Overall services revenue of $96.3 billion fell short of the $98.4 billion consensus.
The monetisation problem
Chief business officer Philipp Schindler told investors on the earnings call that AI Mode, a new tab in Google Search, is popular but carries "lower monetisation" than traditional results. The company plans to insert more ads into the feature, but for now each AI query generates less revenue than a standard search. That dynamic turns every user migration toward chat-style answers into a margin hit.
The spending trajectory
Capital expenditures have surged to record levels. By the end of September, future commitments for computing power, energy and data-centre leases totaled $924 billion. Non-commenced lease obligations added another $152 billion, pushing total forward obligations above $1 trillion. Free cash flow has been negative for two consecutive quarters, a first since the initial public offering.
The contrast with Microsoft
Microsoft reported cloud growth that beat expectations while keeping its own spending discipline intact. That divergence sharpened the market’s focus on whether Alphabet can convert its infrastructure outlays into a comparable revenue stream, or whether the cash cow is being starved to feed an experiment that has not yet paid for itself.