Alphabet’s AI Spending Spree Turns Search Anxiety Into a $500 Billion Rout
Alphabet’s AI Spending Spree Turns Search Anxiety Into a $500 Billion Rout
Alphabet entered its third-quarter report with a powerful AI-growth narrative. Revenue rose 25% to $127.6 billion, and Sundar Pichai said the company had reached a “half-trillion annual revenue run rate.” In a post after the results, Pichai also argued that AI investments were lifting overall and commercial Search queries, with year-over-year query growth at a five-year high.
The catch emerged in the details. Search and other revenue grew 12% to roughly $63 billion, missing expectations for a second straight quarter and slowing from 19% growth in the first quarter. Google’s Philipp Schindler acknowledged that rapidly growing AI Mode queries brought “lower monetisation,” even as the company began scaling ads in AI products.
That disconnect — more queries, less convincing revenue growth — became the market’s central concern. Alphabet also reported negative free cash flow of about $9.1 billion, after capital expenditure climbed above $51 billion for the quarter. The company kept its 2026 capex forecast of $195 billion to $205 billion and said spending would rise significantly again in 2027.
Shares fell about 13% on Thursday, erasing roughly $500 billion in market value at one point. David Wagner of Aptus Capital Advisors captured the sceptical view: “In a market worried about AI chatbots cannibalising its key franchise, investors need to see it accelerating, not decelerating.”
Yet the quarter was not simply a retreat story. Google Cloud revenue more than doubled to $30.7 billion, with a backlog near $560 billion. Tech analyst Dan Ives called it “the Cloud print we have been waiting for,” arguing that it mattered more than the weaker Search result. For investors, however, that promise now competes with a harsher near-term test: whether Alphabet can fund AI’s enormous buildout without weakening the cash-generating search business that pays for it.
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