Alphabet Shares Plunge as AI Erodes Search Revenue
Alphabet Inc. lost $758 billion in market value after earnings missed expectations, sparking fears that AI is cannibalizing traditional search advertising revenue.
Shares of Alphabet Inc. plummeted more than 12% in a single day, wiping out $758 billion in market value following an earnings report that missed both top and bottom-line expectations. While the company reported 25% overall revenue growth and a 103% surge in Google Cloud revenue, its core search business grew by only 12%, falling short of the projected 17%.
Investors are concerned that Google's AI Mode for search is cannibalizing traditional search revenue because it is monetized at a lower rate. This shift, combined with soaring capital expenditures for AI infrastructure and a transition to negative free cash flow, has fueled anxiety over the company's long-term monetization strategy. Competition from AI agents, such as Meta Platforms Inc.'s Muse, has further increased execution risks.
Market reactions remain divided. Some analysts downgraded the stock, citing the risk that AI agents may replace the browser or search as the primary internet gateway. Conversely, Morningstar raised its fair value estimate for Alphabet to $450 per share, pointing to vertical integration and cloud growth. Other observers suggest the selloff may be overdone, noting that the stock is trading at 18 to 19 times forward earnings, which some view as a long-term buying opportunity.
