The market punishes Alphabet. Google’s actions they came down by nearly 12% at Wall Street’s open Thursday, en route to the worst post-quarter session in the group’s history. The decline wiped out approximately $465 billion in market capitalization in just a few hours: a figure equal to more than three times the company’s entire quarterly revenue, which stood at $127.6 billion.
The sales were triggered by the slowdown of the group’s main engine, the Searchcoupled with the economic impact of the transition to generative artificial intelligence.
Slow down the Search (what does that mean)
In the third quarter, Google search revenue rose to $63.35 billion, marking 12% year-over-year growth. The data highlights a clear decline in pace compared to the +17% recorded in the second quarter and misses the consensus estimates of analysts, stuck at a forecast of 15%.
CEO Sundar Pichai highlighted how query volume is growing “at the fastest rate in five years.” But there is a ‘but’ as big as a house. The critical issue, as specified by Chief Business Officer Philipp Schindler, lies in the monetization of AI Mode, the chatbot-style conversational search mode. Each interaction in this format generates “less advertising revenue” than a classic search, while the formats sponsored within it remain in the testing phase. Further expansion of the function into 10 additional markets increases volumes processed, but increases pressure on margins.
Added to this picture is the dynamics of capital, with free cash flow falling to -9.1 billion dollars, weighed down by huge investments in infrastructure (CapEx) to support artificial intelligence models.
Google Cloud’s leap is not enough to contain the doubts
The stock’s decline obscures the cloud division’s performance. In the third quarter, Google Cloud revenues doubled, recording +103% to $30.7 billion, with an order book to be invoiced (backlog) reaching $561 billion. Analyst Scott Devitt of Rosenblatt estimates that by 2028 this split “can surpass in terms of turnover the aggregate of Search and YouTube Ads”.
For investors, however, the priority remains the defense of the core business. Dave Wagner, portfolio manager at Aptus Capital Advisors, underlined how in a market worried about the impact of AI on core business, Wall Street demands an acceleration of research and not a slowdown.
What the analysts say
Thursday’s decline follows the 7.1% drop already recorded after the publication of the July accounts. On a technical analysis level, the break of the key support at $306 opens the way towards the next technical level positioned at 275.
Despite the collapse in prices, most investment banks maintains a bullish bias on the stock in the medium term. Out of 29 analysts surveyed by TipRanks, 25 maintain a Buy rating, with an average target price of $398.50.
However, most of the official assessments were formulated before the release of the quarterly report. The stability of these estimates will depend on Google’s ability to convert AI Mode traffic into real advertising revenues before the cash drain compromises the stability of margins.