Alphabet shares fall 12.6% as AI spending spooks investors and drags S&P 500 lower
Alphabet's Class A shares fell 12.6% on Thursday, their worst day since they began trading more than 20 years ago, after the company behind Google and YouTube reported weaker summer growth than analysts expected. The drop dragged the S&P 500 down 0.3% to 7,720.39, its first loss in four days, even though four out of every five stocks in the index rose. The Nasdaq composite fell 1.4% to 26,184.72 and the Dow Jones Industrial Average slipped 132.54 points, or 0.3%, to 52,342.56.
The sell-off centred on what Alphabet is spending to compete in artificial intelligence. The company said late on Wednesday that free cash flow shrank in the latest quarter after purchases of property and equipment topped $51 billion, according to Token Times. Investors had pressed the tech giant to at least meet growth expectations while it funds that build-out.
The concern is spreading across the AI industry, which has raced to build data centres and fill them with chips. Token Times reported that doubts are growing over whether the AI revolution will produce as much profit and productivity as hoped, while borrowing money to buy more chips has become more expensive.
Alphabet's slide masked an otherwise strong day on Wall Street. KLA Corp rose 5.5%, Eli Lilly climbed 6.6%, Mastercard added 4.2% and Merck 3.8%. DoorDash rose 5.6% after agreeing to buy Instacart in a deal valuing it at $17 billion, and Norwegian Cruise Line Holdings jumped 13.4% on stronger-than-expected summer profit and revenue.
In bonds, the 10-year Treasury yield eased to 4.94% from 5.05% after mixed US economic data, helped by a 0.8% fall in Brent crude to $110.80 a barrel. In Europe, indexes rose after the European Central Bank held rates steady; its president, Christine Lagarde, said she will resign in February, nine months before her term ends. South Korea's Kospi fell 1.2% as Samsung Electronics dropped 4.1% despite reporting a jump in profit.
