Alphabet's record 12.6% plunge erases $500 billion in one day

Why investors sold: Alphabet reported negative free cash flow of $9.07 billion for the third quarter, about three times the $2.7 billion shortfall analysts expected, CNBC reported, while keeping its 2026 capital spending forecast at $195 billion to $205 billion and saying spending would rise significantly in 2027. Search and other revenue grew 12% to about $63 billion but missed estimates for the second straight quarter. An Alphabet executive told investors that Google's own AI Mode search feature was showing fewer ads so far. JPMorgan analysts called the search slowdown “steeper than expected.”

The ripple effect: The Nasdaq Composite closed down 1.37% and the S&P 500 fell 0.3% for its first loss in four days, even though most stocks in the index rose, AP reported. The Dow slipped 132 points, or 0.25%. Communication services, the S&P 500 sector that includes Alphabet, fell 6.6%, its biggest drop since February 2022, Reuters said. Chip stocks fell 1.4%, and Caterpillar, which supplies machines used to build data centers, fell 9.2% after its own results, NBC News reported.

Microsoft's day: Microsoft, which reported 30% higher capital spending of $45.2 billion but still-positive free cash flow of $18.6 billion, ended Thursday effectively flat after rising in after-hours trading Wednesday, NBC News and CNBC reported.

Timeline: Wednesday after the close, Alphabet reports a revenue and profit miss and the $9.07 billion cash burn; shares fall about 10% after hours. Thursday morning, the drop deepens past 13% and at one point nearly 16%. Thursday at 4 p.m. Eastern, the stock closes down 12.6%, a record. After the bell, Amazon reports sales below forecasts, and its shares fall about 10% to 12% in after-hours trading, according to NBC News and Reuters.

The strongest case from each side: Bulls point to Google Cloud revenue more than doubling, more than 1 billion Gemini app users and the strongest search query growth in five years, and Alphabet's finance chief said cash will come in as it delivers and bills customers for its AI chips. Skeptics say AI is starting to eat into the search ads that pay for the build-out, and that Alphabet's more than $1 trillion in multiyear spending commitments, reported by NBC News, will take years to pay off.

What's still unknown: How much Alphabet's 2027 spending will rise; it has said details come on its next earnings call. Whether Amazon's after-hours drop holds when trading opens Friday.

Updated Oct. 29 after the market close with final trading figures; an earlier version used intraday numbers. Market-value losses are as reported by NBC News and CNBC. Earnings figures come from Alphabet's and Microsoft's releases as reported Oct. 28. Analyst estimates are the consensus figures the cited outlets used. Free cash flow is a company-defined, non-GAAP measure. Amazon's after-hours move was still changing when this was written.