Alphabet Stock Plunges on AI Spending Fears
On Thursday, October 29, Alphabet’s stock price plummeted, driven by underwhelming advertising results and substantial investments in artificial intelligence, which revived concerns about the sector’s ability to generate profits. As the company’s parent, Google, saw its stock drop by approximately 13% during the day, the market put it on course to lose around $500 billion in market value. This significant decline had a ripple effect, causing the Nasdaq Composite to fall by about 1.6% as investors reevaluated the financial implications of the AI boom.
Investors Seek Tangible Proof of Profitability
The figures reported were based on intraday market activity and had not been confirmed as final closing results. If the decline persisted, it would surpass the 11.6% single-day loss Alphabet experienced in 2020. This episode showed the market’s heightened sensitivity to the disparity between the growing use of AI and the revenue it generates. Google’s advertising sector failed to meet analysts’ expectations, and the company’s free cash flow decreased as it expanded its AI infrastructure. Following the release of the earnings report, the stock had already declined by about 10% in after-hours trading.
The earnings report revealed a key challenge: AI can increase product usage without immediately producing proportionate revenue. According to the earnings data, the rising use of AI Mode searches contributed to weaker-than-expected search revenue, as these interactions were less profitable than traditional searches. This creates a delicate balance for Alphabet, as the company must invest in AI to remain competitive while also protecting its advertising business, which funds its expansion. The investors’ reaction indicated that they were seeking clearer evidence that the company could effectively monetize its AI investments.
Economic Indicators and Commodity Prices
The U.S. economic data added another layer of complexity to the market environment. The preliminary estimate indicated that the U.S. GDP grew at an annualized rate of 3.4% in the third quarter, up from 2.2% in the second quarter. The quarterly core PCE measure increased at an annualized pace of 2.5%, exceeding the expected 2.4% but falling below the previous quarter’s 3.3%. The combination of resilient economic growth and persistent inflation reinforced expectations that monetary policy would remain restrictive.
Brent crude oil settled at $114.88 per barrel, a decrease of 44 cents, while West Texas Intermediate crude oil fell by 78 cents to $102.00 per barrel. These verified settlement prices differ from the previously mentioned reference to Brent crude being below $110, which should not be presented as the closing price for the same contract. Diplomatic developments helped alleviate some concerns about supply disruptions after the Wall Street Journal reported that Vice President JD Vance had written to Iranian official Mohsen Rezaei to restart peace negotiations.
As Europe entered the winter season, gas prices came under pressure, with the TTF benchmark briefly reaching €100/MWh on October 28, its highest level since December 2022, due to disruptions in Middle Eastern LNG shipping. The European Central Bank maintained its deposit rate at 2.50%. Christine Lagarde announced plans to leave in February, before her scheduled October departure, opening a succession contest during a difficult period for European policy.
Spot gold price was at $4,015.60 per troy ounce, down more than 1%, and silver at $52.06, down more than 3%, in its October 29 report. Silver’s heavier decline reflected weaker investment demand and improving physical availability. The day’s defining issue was profitability: markets demanded evidence that growth could withstand expensive capital and persistent inflation.
