Alphabet Plunges 13%, Putting $500 Billion in Market Cap at Risk

Shares in Google parent Alphabet plunged 13%, putting $500 billion (about 700 trillion won) in market value at risk of being wiped out in a single day. The decline came as the company poured vast sums into artificial intelligence (AI) investment, while its search advertising business, its core source of revenue, fell short of market expectations and cash flow also deteriorated.
On the 29th (local time), Alphabet shares plunged 13% in early trading in New York. If the stock closes the day down more than 9.77%, it will mark the biggest drop immediately after an earnings report since the company went public in 2004. Alphabet’s expected loss in market value exceeded $500 billion, accounting for most of the anticipated $693 billion decline in the total market capitalization of the Nasdaq-100 index.
The main reason for the sharp drop in the share price is the cash drain from AI investment. Alphabet’s free cash flow (FCF) in the third quarter was negative $9.07 billion, with the deficit at least three times as large as the market’s forecast of negative $2.7 billion. Alphabet maintained its forecast for capital expenditures (CAPEX) this year at $195 billion to $205 billion.
By contrast, rival Microsoft’s spending on capital expenditures and finance leases in the third quarter rose 30% year over year to $45.2 billion, but came in below the market estimate of $50.67 billion. Its free cash flow also fell 27%, but remained positive at $18.63 billion. Analysts say the difference in the two companies’ ability to generate cash drove their divergent share-price performance.
Warning signs have also emerged in search advertising, Alphabet’s core business. Search ad revenue in the third quarter rose 12% year over year to $63.35 billion, but fell short of market expectations. The lower ad profitability of AI Mode, the company’s AI-powered search feature, compared with traditional search weighed on results. Search demand is also being spread across rival AI services such as ChatGPT and Claude, adding to the pressure.
Ben Barringer, global head of technology research at Quilter Cheviot, said, “Google faces the innovator’s dilemma of having to decide whether to protect its existing core business or take part in new innovation.”
Technology stocks also fell in the wake of the Alphabet shock. As of 9:56 a.m. that day, the Nasdaq Composite was down 1.64%, while ServiceNow and Fortinet plunged 23.3% and 21.7%, respectively. With the possibility of another Federal Reserve (Fed) rate hike in December also rising, concerns are spreading about the burden of raising funds for AI companies.




[email protected] Correspondent Lee Byung-chul Reporter