Alphabet ($GOOGL) just had one of its ugliest days ever. More than $500 billion in market cap gone, and the big indexes went down with it.
The earnings were the trigger. Revenue grew 25% to $127.6 billion, which is strong, but EPS missed consensus by a lot. A miss like that on the bottom line usually means institutions sell now and read the call later.
Search is what people are actually nervous about. Growth in core Search came in slower than expected, and the fear is that AI answers are cannibalizing ad revenue. Search also dropped below 50% of total revenue for the first time. Cloud growing fast explains some of that, but the market read it as lost ground anyway.
Then there’s the spending. Capex was $51.4 billion in Q3 alone, mostly AI infrastructure and Google’s own TPUs, and free cash flow went to -$9.1 billion. Investors will put up with a lot of AI spending, just not forever without margins to show for it.
There is a bright spot. Cloud revenue more than doubled to $30.7 billion, so businesses clearly want AI. Some analysts think being less dependent on search ads is healthy anyway. Others aren’t convinced.
Follow for my next post, as I will give an analysis on what to possibly do next. There is always an opportunity in every situation.
Stay Safe fam.