Alphabet loses Sh64.5 trillion in market value as AI spending fears hit shares

Google parent company Alphabet, has lost approximately Sh64.5 trillion ($499.8 billion) in market value after its shares plunged nearly 13 per cent on Thursday, as investors reacted to disappointing quarterly earnings and concerns over the rising cost of its artificial intelligence (AI) investments.

The sell-off followed the company's third-quarter financial results released on Wednesday, which showed revenue of Sh16.46 trillion ($127.6 billion), representing a 25 per cent increase compared with the same period last year.

However, the revenue figure fell short of Wall Street expectations, triggering concerns about whether the company's rapidly expanding AI operations will generate sufficient returns to justify its enormous infrastructure spending.

According to figures reported by The Wall Street Journal, Alphabet's Class A shares closed at $283.82, equivalent to approximately Sh36,613, after falling 12.64 per cent.

The decline wiped approximately Sh64.5 trillion from the company's market capitalisation, making it the second-largest single-day loss in stock market history.

The company's shares came under pressure despite strong performance in its cloud computing business, as investors focused on the financial implications of maintaining its position in the increasingly competitive AI industry.

Alphabet spent approximately Sh6.63 trillion ($51.4 billion) on capital expenditure during the quarter, with much of the investment directed towards data centres and computing infrastructure required to support its AI operations.

The company expects its capital expenditure to reach between Sh25.16 trillion ($195 billion) and Sh26.45 trillion ($205 billion) this year, with spending projected to increase further in 2027.

The scale of the investment has raised questions about profitability, particularly as technology companies compete to develop AI models, expand computing capacity and attract businesses seeking AI-powered services.

Despite the market reaction, Google Cloud recorded significant growth, with revenue more than doubling to Sh3.96 trillion ($30.7 billion), representing a 103 per cent increase from the previous year.

The performance exceeded analysts' expectations of approximately Sh3.77 trillion ($29.2 billion), reflecting strong demand for cloud computing and AI-related services.

However, the growth has also brought additional costs as Alphabet expands its infrastructure to meet demand.

The company's Chief Financial Officer, Anat Ashkenazi, warned that Google Cloud could experience short-term pressure on profit margins as it relies on external computing capacity to meet customer demand.

The warning has heightened investor concerns about whether revenue growth in the cloud business will translate into sustainable profits.

Alphabet's core search advertising business also showed signs of slower growth, adding to market concerns.

Google Search revenue increased by 12 per cent compared with the same period last year, down from 17 per cent growth recorded in the previous quarter.

The slowdown comes as AI-powered search tools reshape how users access information online, raising questions about the long-term impact on Google's traditional search advertising model.

The latest sell-off surpassed Alphabet's previous record single-day market value loss of approximately Sh35.48 trillion ($275 billion) recorded in July.

However, it remained below the largest single-day market capitalisation loss in stock market history, recorded by Nvidia in January 2025, when the chipmaker lost approximately Sh76.01 trillion ($589 billion).

The developments highlight the growing financial pressure facing major technology companies as they commit billions of dollars to AI infrastructure while investors demand evidence that the investments can deliver lasting commercial returns.

For Alphabet, the challenge will be balancing continued investment in AI and cloud computing with the need to protect profit margins and sustain growth in its established advertising business.