The overall stock market was hit with shocking news as shares in Alphabet parent company Google plunged around 12% following disappointing earnings. By the time the market slowed, Alphabet’s market capitalisation had fallen by around $500 billion.
This marks the biggest fall seen by Alphabet, and one of the biggest falls seen by any US firm. Investors are now asking whether the AI boom has become a bust.
What happened to Google’s stock?
After reporting its third quarter results on Wednesday evening, Alphabet saw revenues come in at a figure of $127.6 billion, a little below the $128.2 billion, below analyst expectations. Profit per share was also below expectations, causing shares to fall heavily on Thursday.
At its lowest point, the stock fell as much as 15.8%. Throughout the day however, it has recovered somewhat to trade around $286, down around 12%. This is the most the stock has fallen in a single session since it was listed back in 2004. It is much worse than 2008 or the March 2020 crash.
Alphabet is now losing around $524 billion in market value. Its previous worst day was a $275 billion in July alone. This is only beaten by the historic $590 billion fall seen by Nvidia.
If you are confused by the term ‘market capitalisation’ it basically means the value of the entire company. It is calculated by multiplying the share price by how many shares exist. If the share price falls quickly then the market capitalisation will fall quickly.
However it is still a huge company, and is America’s 4th largest, with a value of around $3.4 trillion. But since the end of September, it has shed roughly $665 billion, falling almost 16% in October alone.
Why Investors got Frightened
There were a few reasons why the market got scared. To begin with Google Search is their primary source of income. They saw search growth fall by around five percentage points compared to last quarter. Analysts say that people are clicking on fewer ads due to the use of AI summaries and chatbots.
Despite more searches than ever (searches are at 5 year highs), many are using AI to answer their questions meaning less clicks on ads. Ads are where Google makes most of their money. Although they are increasing the number of ads in the AI Mode feature to more users, including internationally, they are not seeing the results match the popularity.
Secondly, Alphabet said they are maintaining their spending plan of $195 billion to $205 billion going forward to 2026. Primarily this is being spent on building more AI data centres. However, their finance chief Anat Ashkenazi told analysts “We continue to expect our capex to increase significantly in 2027.”
Thirdly, free cashflow fell into the negatives again for the second quarter running. Alphabet are now losing money with figures of around -$9 billion.
To try and calm nerves the CEO Sundar Pichai said Google are “focused on Search first, then monetization” to provide the best user experience. This is the same strategy they used when the world switched to mobile phones.
How Competitors and the Market Reacted
The fall in Alphabet’s shares caused the market to fall slightly. The Dow and S&P 500 fell by around 0.5% whilst the tech-heavy Nasdaq fell by around 1.5%. Chip stocks fell too with one major semiconductor index falling 1.6%. Investors have become concerned again regarding how long AI spending will take to pay off.
However, competitors performed very differently. Microsoft, who also posted their results on Wednesday, saw their Azure cloud business grow by 48%. Their market capitalisation was around $3.9 trillion, compared with Alphabet’s $3.5 trillion at mid-morning.
Amazon fell between 2-3% ahead of their report after close. Meta saw their share price rise by around 3% due to increased spending guidance. Microsoft have seen their shares rise around 9% so far this year, whereas Alphabet has seen them fall around 8%.
Analysts were not kind. BMO cut their target to $425 from $480 but maintained an Outperform rating. Bank of America cut their target to $380, and UBS to $332. Citizens downgraded the stock.
What Happens Next?
Although the fall may look worrying, Google Cloud was a positive point and many analysts are still positive. On average the target price is still a lot higher than what the stock is currently trading at. Some investors also mention that the stock is trading at a lower PE ratio than Microsoft.
Long term investors may also be more relaxed. Last year was a great year for the stock. Shares have risen around 59% by late November 2025 and Alphabet briefly surpassed Microsoft. Just because it had a bad day does not mean it will fall forever.
However, the stock has fallen around 30% from its high in May of around $408. It now sits near its 52-week low of $267.67. Whether it recovers depends on how much search growth there is and how much Alphabet can turn their AI spending into actual profits.
Microsoft currently has a market cap of around $3.9 trillion, beating Alphabet. They have come out of earnings week looking much more stable. While Alphabet currently ranks the 4th largest company in America.
