Alphabet drops around 10% after earnings report as search slows, expensive AI
Disappointing results in search advertising and high cost of AI weigh on Alphabet, while Google Cloud revenue more than doubled.
BY THE X-TRADER NEWS NEWSROOM · REPORTING FROM INFOMONEY · 2 MIN
Shares of Alphabet, Google's parent company, plummeted after the market closed, falling about 10%, after the company released its October 28 results, according to Reuters, InfoMoney reported. The move focused on the company's core business, search advertising, which was considered disappointing.
According to InfoMoney, two factors explain the market reaction. The first is the cost of artificial intelligence, which remains very high. The second is the slowdown in the growth of search, precisely the business that supports the company's advertising. In the same release, cash consumption accelerated sharply with investment in AI.
Not everything, however, was negative. Google Cloud revenue more than doubled, which InfoMoney interprets as a sign that enterprise customers are adopting artificial intelligence. This is the counterpoint to a balance sheet that left investors with more questions than answers about the search area.
For Dave Wagner, portfolio manager at Aptus Capital Advisors, cited by InfoMoney, investors want to see the search accelerate again. There is also fear that AI itself can cannibalize the search business, a dilemma that weighs on the company.
For those who observe the economy through a fiscally responsible lens, the central issue is the return on capital. High spending on AI is only justified if it comes back in the form of revenue growth, and the market, in this episode, demanded this proof before accepting the promise.
What changes for the investor
The episode shows that the market started to demand a concrete return on investment in AI, measured in searches and the cloud. For the investor, the point to monitor is whether the acceleration of search and the advancement of Google Cloud can offset the cost of AI and cash consumption. This tension may continue to weigh on the stock in the coming balance sheets, without this indicating a defined direction for the price. This report is not a recommendation to buy or sell.
Automatically translated from Portuguese.
