AI eats into Google sales

Picture Credit: by NDTV Profit

Alphabet shares plunged more than 13%, wiping approximately $511 billion from the company’s market value in its biggest-ever single-day loss, after its third-quarter results fell short of Wall Street expectations. The disappointing performance intensified concerns about the impact of artificial intelligence on Google’s core advertising business and the scale of its growing AI investments.

The Google parent reported third-quarter sales of $111.2 billion, below analysts’ projections. Advertising revenue from Google Search and other channels also missed expectations, recording its slowest growth in five quarters. The business accounts for roughly half of Alphabet’s overall revenue and remains central to funding its AI ambitions.

Growing use of AI-powered search features is adding pressure to the traditional advertising model. Alphabet executives acknowledged that AI queries currently generate lower advertising revenue, although the company plans to introduce more advertising opportunities within these experiences.

Meanwhile, the cost of competing in the AI race continues to rise. Alphabet’s future commitments for resources such as computing power and energy reached $924 billion by the end of the quarter. Including additional obligations, such as data-centre leases, its total future commitments exceed $1 trillion.

Picture Credit: by BBC

The company has also recorded negative free cash flow for a second consecutive quarter, raising questions about whether its substantial AI spending is translating into sufficient financial returns. Alphabet had previously indicated that capital expenditure could reach as much as $205 billion this year.

Not all divisions reported disappointing results. Google Cloud delivered revenue of $30.7 billion and profit of $11.1 billion, exceeding analyst estimates and highlighting continued demand for its AI infrastructure and hosting services. However, weaker-than-expected results from Google Services and YouTube advertising added to investor concerns.

Alphabet is attempting to transform products such as Search, YouTube and Gmail for the AI era while competing with companies including OpenAI and Anthropic. The latest results have placed greater focus on whether it can successfully monetise these developments while maintaining the advertising revenue that has historically supported its business.

For investors, the challenge is no longer simply how much Alphabet can spend on AI, but whether those investments can generate sustainable returns.