Google stock drop: Alphabet falls 12.6% as investors count the cost of AI

On October 29, Google stock, meaning shares of Alphabet, dropped 12.6% to $283.82 (according to ABC News coverage). That makes it the worst session in the company’s history, and nearly $500 billion vanished from its market value. The drop came a day after Alphabet published its third-quarter 2026 results.

Why the Google stock drop, when the results were a record?

At first glance, the quarter looks great. According to Alphabet’s release:

1. revenue grew 25% to $127.6 billion,
2. Google Cloud grew 103% to $30.7 billion,
3. the group’s operating margin came in at 31.8%.

The problem is the cost of building out AI. Spending on hardware and infrastructure (capex) hit $51.4 billion in the quarter, compared with $24 billion a year earlier. As a result, free cash flow was negative, at minus $9.1 billion, despite $42.3 billion in cash from operations. According to Fortune, this is the second quarter in a row in the red (Q2 came in at minus $5.9 billion).

Then there’s the plan for next year. Alphabet reaffirmed its 2026 spending forecast (about $200 billion, according to Fortune) and announced a significant increase in 2027. Details are due with the fourth-quarter results.

Luke Lango, an independent analyst quoted by Fortune, put it this way: Alphabet is now funding its AI build-out “with shareholders’ money instead of its own cash”.

Is AI eating Google Search?

That’s the second thread getting a lot of attention. Search revenue (Google Search & other) grew 12% to $63.4 billion, and Google Services as a whole grew 11% to $96.3 billion. According to ABC, the segment missed analyst expectations by just over $2 billion.

Dave Wagner of Aptus Capital Advisors told ABC that in a market worried AI is “cannibalizing” search, investors need to see search accelerate, not slow down. Sundar Pichai argues the opposite in the release: that AI investments are driving growth in queries, including commercial ones.

Net income was also hit by a one-off item: an $8.7 billion loss on equity investments, which Luke Lango (quoted by Fortune) links to the SpaceX stake. It’s a paper loss, unrelated to AI.

What’s new here for AI?

The numbers about Gemini itself are interesting, and easy to miss amid the share-price chaos. According to Pichai:

1. the Gemini app has a billion users and is the fastest-growing product in Google’s history,
2. Google’s models process nearly 32 billion tokens per minute through the API,
3. Gemini 4 Argon and Carbon are, in his words, “at the frontier” (I wrote about Gemini 4 Carbon here).

Google Cloud is growing because companies want to buy compute for AI, including TPU systems. But the market is starting to ask not whether AI sells, but who pays for it and how. As Hugh Lam of Betashares (quoted by ABC) noted, the market is no longer rewarding AI spending on its own and is starting to check how it’s funded.

Google wasn’t the only one to feel it: Amazon shares fell about 6% after hours on higher-than-expected spending, while Microsoft barely moved (minus 0.2%).

Is it a record?

For Alphabet, yes. According to The Globe and Mail, it’s the second-largest single-day loss of market value in US stock market history. Only Nvidia’s $593 billion drop in January 2025, when the market got spooked by DeepSeek, was bigger.

For us, as AI users, this story has two sides. On one hand, Google isn’t slowing down: it’s spending record amounts on infrastructure that future Gemini models will run on. On the other, investor pressure for a return on that money may sooner or later show up in API prices and free-tier limits. Similar questions will probably come up when Anthropic stock debuts on Nasdaq.

FAQ

Why is Google stock dropping?

Because AI spending ($51.4 billion in the quarter) exceeded cash from operations, free cash flow was negative, and search grew more slowly than analysts expected. Alphabet also announced a significant increase in spending in 2027.

How much is Google spending on AI?

In the third quarter of 2026, infrastructure spending came to $51.4 billion. For the whole of 2026, Alphabet plans about $200 billion (according to Fortune), and 2027 is set to be significantly more.

How many users does Gemini have?

According to Sundar Pichai, the Gemini app has a billion users.