Alphabet shares suffered their worst fall since the company began trading more than two decades ago on Thursday, dragging US markets lower as investors questioned whether its vast spending on artificial intelligence will deliver sufficient returns.
Class A shares in the Google and YouTube owner fell 12.6% after Alphabet reported weaker summer growth than analysts had expected. The sell-off overshadowed gains across much of the wider market.
The S&P 500 fell 0.3% to 7,720.39 for its first decline in four sessions, despite four out of five companies in the index rising. The Nasdaq Composite dropped 1.4%, or 365.13 points, to 26,184.72, while the Dow Jones Industrial Average slipped 132.54 points, or 0.3%, to 52,342.56.
Alphabet’s results showed the financial strain associated with its artificial intelligence investment programme. The company said it had used more cash in the latest quarter, with purchases of property and equipment exceeding $51 billion.
The figures have intensified concerns across the technology sector about the cost of building data centres and equipping them with AI chips. Investors are also questioning whether the technology will generate the level of profit and productivity that has been anticipated.
Higher borrowing costs have added to pressure on future investment, making it more expensive for companies to finance further spending on data centres and computing equipment.
Alphabet’s decline came despite strong performances from several other US-listed companies. KLA, whose equipment is used to manufacture semiconductors, rose 5.5% after reporting better-than-expected summer profits.
Eli Lilly gained 6.6%, Mastercard climbed 4.2% and Merck added 3.8%. DoorDash rose 5.6% after agreeing to buy Instacart in a deal valued at $17 billion and reporting quarterly revenue and profit ahead of analysts’ forecasts.
Norwegian Cruise Line Holdings advanced 13.4% after beating expectations for summer profit and revenue. The company said passengers spent more on board its ships than it had anticipated, among other factors.
Expectations for corporate profit growth have helped the S&P 500 reach a record this month, despite high interest rates and other concerns affecting financial markets. Alphabet’s results have now placed renewed focus on whether the returns from AI investment will justify its cost.
In the bond market, the yield on the 10-year US Treasury eased to 4.94% from 5.05% on Wednesday. Yields have generally fallen since reaching 5.30% earlier this month, their highest level since 2002.
Several mixed economic reports contributed to the move. A preliminary estimate suggested the US economy grew faster than expected over the summer, supported by consumer spending and business investment in AI, while income growth in September was weaker than forecast and a measure of inflation worsened.
Fewer US workers applied for unemployment benefits last week, indicating that layoffs may remain limited. Brent crude oil fell 0.8% to $110.80 a barrel, also helping to pull Treasury yields lower.
