Google has its worst day on the stock market since 2004, weighed down by the cost of its AI data centers

Revenue is up 25%, cloud has doubled, and the Gemini app has passed a billion users. And yet, on October 29, shares of Alphabet, Google's parent company, fell about 13%. According to CNBC, it was the stock's worst session since it went public in 2004: nearly $500 billion in value erased in a single day. The previous record, a drop of 11.63%, dates from March 2020.

The third-quarter results, published on the evening of October 28, explain this paradox. Google makes money, a lot of it. But it spends even more to build the infrastructure for AI.

Spending that outpaces the cash generated

According to the filing with the U.S. Securities and Exchange Commission (SEC), Alphabet spent $51.4 billion on servers, buildings and equipment in the quarter alone. The result: negative free cash flow of $9.1 billion. Analysts, by contrast, had expected a positive balance of $2.7 billion, according to CNBC. Also according to CNBC, the group is maintaining its capital expenditure forecast for the year, between $195 billion and $205 billion.

Profit remains high at $26.5 billion. It is down from $35 billion a year earlier because of an $8.7 billion loss on securities, versus a $10.7 billion gain back then, while operating income rose 30%. The problem lies elsewhere. Free cash flow measures the money that actually stays in the bank, and it has turned negative.

Does AI-powered search pay as well?

The second source of concern is search, Google's historic core business. Its revenue grew 12%, to $63.4 billion, but less than analysts had forecast. According to CNBC, Philipp Schindler, Google's chief business officer, attributed part of this gap to weaker monetization of AI Mode, the interface where the search engine answers directly with generated text. The official release, for its part, gives no figures on this mode.

Ben Barringer of asset manager Quilter Cheviot, quoted by CNBC, describes “rather muddled results” and a call with analysts that was “poorly handled.”

Microsoft, the other approach

The same day, Microsoft's stock held roughly steady. Its quarterly capital expenditure, $45.2 billion, came in below expectations, and its cash flow, down 27%, stayed positive. According to Ben Barringer, Microsoft is building its infrastructure “in a measured way.”

What this changes

For a European company that is a Google Cloud customer, nothing changes immediately: the cloud business jumped 103%, to $30.7 billion. But the session shows that markets now judge AI on what it earns, and no longer only on what it promises. Torsten Slok, chief economist at asset manager Apollo, made the same observation on the user side, estimating that outside the tech sector, AI is not yet paying off for U.S. companies. The next test: the annual results, expected in early 2027, and the capital expenditure forecast for next year.