Alphabet lost more than $500 billion in market value and fell 12.64% on Thursday, October 29, after its quarterly update rattled investors already worried about the cost of artificial intelligence. Amazon also slid after its own earnings report, and the sell-off dragged the Nasdaq 100, S&P 500 and Dow Jones lower.

Alphabet’s revenue grew, but investors focused on the bill for AI

Alphabet, the parent of Google, said revenue rose 25% to $127.6 billion, narrowly missing analyst expectations of $127.9 billion. Operating income climbed to $40.6 billion, but GAAP earnings per share fell to $2.12 from $2.87 a year earlier, in part because the company reported $8.2 billion in other expenses, including a $12.4 billion loss on equity securities tied mainly to SpaceX.

The company also said free cash flow was negative by more than $9 billion as it prepared to spend $195 billion to $205 billion on capital expenditure. Google Cloud was the standout, with revenue jumping 103% to $30.7 billion, but search was a different story. Google Search revenue rose 12% to $63.4 billion, its slowest growth rate since 2023.

The BBC said Google’s artificial intelligence summaries on search were affecting ad revenue. Alphabet management said queries were growing at their fastest pace in five years and that AI Mode would create more monetisation opportunities over time. The company also said it was expanding ads in AI Mode to international markets and sponsored placements on follow-up questions in the United States.

Wall Street wants proof that AI spending will pay off

Pepperstone analyst Chris Weston said investors were increasingly questioning whether shareholders would earn adequate returns on the enormous capital being deployed for AI. That concern, rather than revenue growth alone, helped explain why strong cloud numbers did not steady the stock.

Alphabet finished the day with a market value of about $3.46 trillion, down from $3.97 trillion the day before, according to the BBC. The company’s shares hit a six-month low in the process.

Amazon adds to the pressure on big tech

Amazon also came under pressure after its quarterly update. The company reported 11% sales growth to $201 billion, but also negative free cash flow of $42 billion. The BBC said its shares fell 6% in after-hours trading, while Reuters reported a 7% decline.

Chief executive Andy Jassy said the company was spending because it saw the chance at two businesses that could one day bring in $1 trillion each. He pointed to Amazon’s own chips and its Bedrock AI developer platform as examples of where that investment could go.

The market reaction leaves big tech facing a simpler question than before: not whether it can spend on AI, but whether that spending can be turned into cash generation that investors will reward.