Alphabet falls more than 10% after first double stumble in almost four years and reignites doubts about the cost of AI

Alphabet set the cloud to grow at a giant pace and still saw its shares lose more than 10% in a single trading session. The reason, according to reports from MarketWatch and Times Brasil, is that the market looked less at what the company earned and more at how much it needs to spend to remain competitive in artificial intelligence.

In the third quarter, Google's parent company reported revenue of US$127.58 billion, below the US$128.22 billion expected by analysts consulted by LSEG. Adjusted earnings per share were US$2.67, compared to projections of US$3.02. It was the first time in almost four years that the company disappointed on both lines at the same time, according to Times Brasil.

Net income fell to $26.17 billion, or $2.12 per share, from $34.98 billion ($2.87 per share) a year earlier. Revenue, on the other hand, increased 25% year-on-year. The mismatch between rising revenue and falling profit is precisely what bothered investors.

There is also free cash flow, which declined in the quarter and, for Times Brasil, acted as a warning sign for the pace of investments in AI. The company maintained its spending forecast for 2026 and projected a significant increase in 2027, which lengthens the period in which cash bears the weight of the technological race.

According to MarketWatch, not even the doubling of cloud revenue was enough to calm Wall Street. The central concern is different: AI would be harming the company's ability to earn money from search queries, the business that has sustained the group for decades.

The episode shows a change in mood. For a long time, it was enough to announce heavy investments in AI to be awarded. Now, the market demands a visible return and signals that patience with high expenses and lower profits has a limit, even for one of the largest companies in the world.

What changes for the investor

The movement serves as a thermometer for the technology sector and the Nasdaq: companies that announce large investments in AI tend to be evaluated more rigorously regarding cash generation and margins. For those who operate technology stocks, attention turns to the next balance sheets of sector peers and free cash flow numbers, which start to weigh as much as revenue growth. Alphabet's reaction indicates that high expectations leave little room for results below expectations.

Automatically translated from Portuguese.