Alphabet loses more than $500 billion in value as AI Mode squeezes search and cash flow

Alphabet shares fell more than 13% to $281.37 by 9:35 a.m. in New York on Thursday, erasing $511 billion in market value, according to the Financial Post. NBC News put the intraday drop at as much as 15.8% and the wipeout at more than $550 billion, which it says put Alphabet on course for its worst single-day drop in history.

The trigger was a third-quarter report that landed late Wednesday and showed a double squeeze: the AI buildout is eating cash, and AI Mode's growing popularity is weighing on results because its queries have lower monetization, according to Philipp Schindler.

The numbers behind the plunge

The miss was broad. The Financial Post reported revenue excluding partner payouts of $111.2 billion, short of analyst projections. Net income was $2.12 a share against Wall Street's estimate of $2.99. Google Services revenue was $96.3 billion against expectations of $98.4 billion, and YouTube ad sales of $11.2 billion also fell below projections.

The heart of it is search. Search and other advertising revenue grew 12% to about $63 billion, short of the roughly $65 billion Wall Street expected, according to Yahoo Finance. Reporting on the results shows growth sliding from 19% in the first quarter to 17% in the second, then 12% in the third, with advertising missing by $1.4 billion overall.

Here is the part that should make every investor sit up. Google said search query growth was the strongest in five years. Usage growth is strong, but search revenue growth is slowing.

Schindler told investors on the earnings call that the growing popularity of AI Mode, a new tab in Google Search, took a toll on results. AI queries have "lower monetization," he said. He added that "ad experiments" in the feature have "shown promising results." The reporting we have gives no timeline for when ads in AI Mode could close the gap.

The cash register is running backward

The second squeeze is cash. Alphabet reported negative free cash flow of $9.1 billion, according to Reuters, against analyst expectations that it would come close to breaking even, LSEG data showed. That follows a $5.9 billion burn in the second quarter, the first time in 22 years as a public company that Alphabet went negative.

The appetite is staggering. The Financial Post reported that in July, Alphabet said capital expenditures would reach as much as $205 billion this year, more than double last year. By the end of the third quarter, future commitments for computing power and energy totaled $924 billion, and data-center leases not yet begun added $152 billion, taking total future obligations to well over $1 trillion. NBC reported that in June the company raised almost $80 billion in capital for the buildout.

There was a further hit below the line: an $8.7 billion loss on equity investments, in large part from the SpaceX stake, the Financial Post said. The reports we have do not give Alphabet's exact third-quarter capex figure.

The good news, and it is real

Google Cloud delivered. The Financial Post reported $30.7 billion in revenue and $11.1 billion in profit, topping estimates of $29.1 billion and $9.8 billion. Hours before the call, Google announced a new model called Carbon, following the recent release of Gemini 4. NBC reported that executives also touted more than 1 billion users of the Gemini app. Still, the cloud beat was not enough to offset the advertising shortfall.

What it means

This is a market telling the biggest names in Super Intelligence that spending has to show up as revenue. The damage spread. The Nasdaq Composite was down 1.6% by midmorning, the Philadelphia semiconductor index fell 1.6%, and Caterpillar, a supplier of the machines used to build data centers, dropped 9% early Thursday, NBC reported.

Keep perspective, because the scale here is thrilling in both directions. Google is still America's fourth-largest company by market value, with shares worth more than $3.4 trillion, all told, according to NBC. A company can lose more than half a trillion dollars in a morning and remain a titan.

What to watch

• Whether Google provides a commercial advertising roadmap for AI Mode.
• Whether search revenue growth stabilizes after 19%, 17% and 12%.
• Free cash flow in the fourth quarter, after two straight negative quarters.
• How the $1 trillion-plus in commitments is scheduled across coming quarters, which the coverage so far does not spell out.

Whatever the final tally, the message is the same. The buildout is historic, and now the bill is too.