Alphabet Erases $500 Billion in Market Value on AI Spending Fears

More than $500 billion vanished from the market value of Alphabet on Thursday as shares dropped by more than 12%. This represents the worst one-day performance in the company's history. The decline placed Alphabet as the second-largest single-day loss in market history, trailing only Nvidia's $589 billion drop in 2025. As of midday, the company remains valued at $3.42 trillion, keeping it as America's fourth-largest firm.

The selloff followed a Wednesday report of quarterly financial results. Revenues came in below Wall Street expectations, and advertising sales showed weak performance. JPMorgan Chase analysts noted in a Thursday morning report that the slowdown in Google's search business was steeper than anticipated. Philipp Schindler, a senior vice president, told investors during an earnings call that the new AI Mode search feature contributed to lower ad revenues. He stated that the company is working to address the issue and that recent ad experiments have shown promising results.

Executives attempted to reassure the market by highlighting that the Gemini AI app now has more than 1 billion users. However, the cost of building this AI infrastructure is substantial. Alphabet disclosed commitments to over $1 trillion in multiyear spending agreements. These funds will cover infrastructure, energy, and leases needed to run AI systems. The company planned to spend more than $200 billion this year, double its 2025 expenditure. It also raised nearly $80 billion in capital in June to support these operations.

The drop in Alphabet shares dragged down other major indices. The Nasdaq Composite fell 1.5% by the afternoon, while the S&P 500 declined by about 0.4%. The Philadelphia semiconductor index dropped 1.6% as investors sold chips used in AI data centers. Caterpillar, a major supplier of construction equipment for data centers, saw its shares plunge 9% early in the day. Caterpillar's earnings beat expectations but by a smaller margin than traders hoped, making it the second-worst performer in the Dow Jones Industrial Average.

Microsoft shares also reacted to the broader market sentiment. After rising in after-hours trading Wednesday, Microsoft stock reversed course to fall about 1.5% by 1:20 p.m. ET Thursday. The Dow Jones Industrial Average declined slightly more than 200 points. Investors are increasingly demanding higher returns from companies involved in the costly AI build-out, punishing firms that narrowly meet earnings targets.