Alphabet Inc. (GOOGL) and Alphabet (GOOG) stock fell about 10% in Thursday's premarket trading after the Google parent reported weaker-than-expected third-quarter results. The report raised concerns about slowing Search growth and rising artificial intelligence spending, a combination that tends to make investors nervous.
The company's results drew mixed reactions from market experts. Strong Google Cloud demand and AI adoption supported the bullish outlook, while slowing Search monetization and heavy capital spending raised concerns.
Alphabet Misses Earnings Estimates, Warns of Headwinds
Alphabet reported third-quarter revenue of $127.58 billion, missing analysts' estimate of $128.20 billion.
Earnings reached $2.12 per share, below the $3.02 consensus estimate.
The company warned of greater foreign exchange headwinds in the fourth quarter, particularly for Google Search and YouTube advertising.
Management also expects tougher year-over-year comparisons following stronger Search growth in the year-earlier period.
AI Spending and Cloud Growth Face Scrutiny
Before Wednesday's earnings report, Constellation Research Chairman Ray Wang told CNBC that Alphabet needed to prove its heavy AI investments could generate stronger revenue.
Wang highlighted Google Cloud's backlog, growing Gemini adoption and competition with Anthropic for enterprise AI customers.
He also pointed to Alphabet's planned annual capital spending of $200 billion to $205 billion, warning that weaker revenue growth could make those investments harder to sustain.
CNBC also highlighted Google Cloud as a key measure of AI investment returns, alongside opportunities to sell Google's custom AI chips to outside customers.
Munster Warns of Search Slowdown
Following the results, Deepwater Asset Management Managing Partner Gene Munster told CNBC that slowing Search growth posed a major concern.
Search revenue growth declined from 19% in March to 17% in June and 12% in September, missing Wall Street's 15% expectation.
Search revenue reached $63 billion despite overall query growth hitting a five-year high. Munster warned that growing use of AI Mode could pressure traditional Search advertising revenue.
Google is expanding advertising within AI Overviews and AI Mode, but Munster said the company must develop new formats to monetize AI-driven searches.
He also cautioned that personalized AI agents could eventually change how consumers discover products and shop online.
Price Action: Alphabet shares were down 10.04% at $292.27 and Alphabet shares were down 9.78% at $290.41 during premarket trading on Thursday, according to market data.
