Alphabet Shares Drop on Rising AI Spending, Earnings Miss

Alphabet shares plummeted over 10% in after-hours trading, wiping tens of billions from the tech giant's market valuation. This sharp decline followed a report of lower-than-expected profit and a notable slowdown in its crucial advertising division.

Net profit for the quarter declined by 25% year-on-year, despite a substantial 25% increase in overall revenue to $127.6 billion. The company also booked an $8.7 billion loss on equity investments, primarily attributed to its stake in a prominent space exploration firm.

Advertising revenue growth decelerated across key segments, with both search and YouTube falling short of analysts' projections. Conversely, Google Cloud demonstrated robust expansion, surging by 103% and significantly exceeding expectations, boosted by its AI chip sales.

Alphabet reported substantial capital expenditures, spending $51.4 billion on infrastructure, predominantly datacenters and AI chips, doubling last year's outlay. The CEO framed this as crucial long-range planning for future growth, rather than a mere short-term allocation exercise.

The firm's ambitious AI strategy led to spending that outstripped generated cash, necessitating significant fundraising through bonds and new shares. Rapid advancements include Gemini's widespread adoption and vastly increased token processing, while the 'Other Bets' division continues expanding its ride services.