Alphabet Shares Fall 12% on AI Costs

Alphabet shares lost more than 12 percent of their value on Thursday, marking the steepest single-day decline in the company's history. The sell-off erased more than $500 billion in market capitalization. As of midday, Alphabet remained America's fourth-largest firm with a valuation of $3.42 trillion. This loss represents the second-largest drop in market history, trailing only Nvidia's $589 billion decline in 2025.

The stock plunge followed the release of the company's latest quarterly financial results on Wednesday. Revenue figures came in below Wall Street projections. Advertising sales also lagged expectations. JPMorgan Chase analysts described the slowdown in Google's search business as steeper than anticipated in a note issued Thursday morning.

Philipp Schindler, a senior vice president at Alphabet, addressed investors on Wednesday. He stated that the company's new AI Mode search feature was contributing to lower ad revenues because it displayed fewer advertisements. Schindler added that ad experiments within the feature have shown promising results. Company leaders also cited the growth of their Gemini AI app, which now serves more than one billion users, to reassure the market.

Investors remain focused on the heavy capital expenditure required for artificial intelligence infrastructure. Alphabet disclosed commitments totaling over $1 trillion for multiyear spending on energy, leases, and hardware. The company plans to spend more than $200 billion this year, double its 2025 outlay. It also raised nearly $80 billion in capital in June to fund this expansion.

The decline in Alphabet shares dragged down the Nasdaq Composite, which fell 1.5 percent by the afternoon. The S&P 500 dropped by about 0.4 percent. The Philadelphia semiconductor index, which tracks chipmakers supplying AI data centers, slid 1.6 percent.

The sell-off extended to the industrial sector. Caterpillar, a major supplier of construction equipment for data centers, saw its stock plunge 9 percent early in the day. The company's recent earnings report showed revenues that beat expectations but fell short of trader hopes. Caterpillar finished as the second-worst performer in the Dow Jones Industrial Average, which declined by more than 200 points.

Microsoft, a peer in the AI sector, saw its shares rise in after-hours trading on Wednesday before reversing course. By 1:20 p.m. ET on Thursday, Microsoft stock had fallen about 1.5 percent. The market reaction reflects a growing demand for consistent returns from companies engaged in costly AI infrastructure projects.