Alphabet Erases $500bn in Market Value as Profit Misses Wall Street Expectations — Big Tech and the digital economy

Shares of Google parent company Alphabet plummeted by double digits, wiping out approximately $500 billion in market value after the tech giant reported a 25% drop in net profit to $26.2 billion. While revenue climbed to $127.6 billion driven by a surge in Google Cloud, advertising growth slowed and heavy capital expenditures on artificial intelligence left the company with a cash gap.

Shares of Alphabet, the parent company of Google, fell sharply from Wednesday evening into Thursday trading, erasing hundreds of billions of dollars from its $4 trillion market valuation. The decline followed the release of quarterly results showing that net profit slid 25% year-over-year to $26.2 billion, or $2.12 per share, falling well short of analyst expectations surveyed by FactSet. This financial miss was compounded by a slowdown in the company's core advertising business and continued massive spending on artificial intelligence infrastructure.

Despite the profit disappointment, Alphabet reported a 25% increase in total revenue, reaching $127.6 billion for the July-to-September period. However, this figure remained slightly below the roughly $128 billion forecast by analysts. Advertising revenue grew 11% to $82 billion, missing expectations, while Google Search, the company's largest income source, saw growth slow to 12% from 17% in the previous quarter. YouTube advertising revenue also decelerated, rising 9% to $11.2 billion compared to 13% growth previously, though YouTube Music and Premium subscriptions surpassed 150 million users globally.

A significant portion of the profit decline was attributed to an $8.7 billion loss on equity investments, specifically linked to Alphabet's stake in SpaceX, whose shares have struggled since going public in June. Conversely, Google Cloud emerged as a major growth driver, with revenue jumping 103% to $30.7 billion and operating income tripling to $11.1 billion. This surge was significantly fueled by sales of the company's in-house AI chips, known as TPUs, which are now being sold to external companies including OpenAI, posing a growing challenge to market leader Nvidia.

Alphabet's "Other Bets" division, which includes the robotaxi service Waymo, generated $372 million in revenue but posted an operating loss of $2 billion. Waymo currently provides over 500,000 paid rides weekly across 15 US metropolitan areas and aims to reach one million weekly rides by year-end. The company's financial strategy involves aggressive investment, with capital expenditures reaching $51.4 billion in the quarter, more than double the $24 billion spent a year earlier. These costs, primarily for data centers and AI chips, outstripped cash generated by businesses, leaving a $9.1 billion gap.

To fund these ambitions, Alphabet raised $28.7 billion through bond sales and $12.4 billion by issuing new shares during the quarter. CEO Sundar Pichai described the spending as a long-range planning process rather than a short-term allocation exercise, with forecasts indicating capital expenditures between $195 billion and $205 billion for 2026 and further increases planned for 2027. In response to concerns about falling behind rivals like OpenAI and Anthropic following a model delay in July, Google accelerated its AI releases, launching Gemini 4 and a cybersecurity-focused version in September. The Gemini app has now reached one billion users, with the company's AI models processing nearly 32 billion tokens per minute.

Anthropic, a major cloud customer for Google, has committed to using up to one million of the company's AI chips. Meanwhile, regulatory challenges persist; in September, a US judge declined to order Google to sell off parts of its advertising technology business, instead imposing operational restrictions.

Sources: The Guardian Technology.