Alphabet and Amazon shares fall as investors question AI spending

Google, Microsoft and Amazon went into their latest earnings reports under pressure from investors to show that their huge spending on artificial intelligence will pay off, the Hindustan Times reported on October 28. Investors want clear returns on the money being spent, and repeated doubts about the benefits of AI have added to uncertainty in the stock market.

Alphabet, the parent company of Google, reported third-quarter results on Wednesday, October 28. The Guardian reported that its shares fell by double digits that evening and in Thursday's trading, wiping about $500 billion off the market value of a company worth around $4 trillion; the BBC also put the loss at $500 billion. Alphabet said net profit fell 25% from a year earlier to $26.2 billion, well short of analysts' expectations. Revenue rose 25% to $127.6 billion, slightly below forecasts, and advertising revenue grew 11% to $82 billion, also short of expectations. Alphabet spent $51.4 billion on capital expenditure in the quarter, mostly on data centers and AI chips, more than double the $24 billion of a year earlier, and said it would keep raising such spending significantly in 2027. Chief executive Sundar Pichai told analysts the company sees the outlay as long-range planning rather than a short-term exercise.

Amazon reported on Thursday, October 29, and gave Wall Street a mixed picture, The Guardian reported. Its cloud unit, Amazon Web Services, grew 39.3% in the latest quarter, the fastest rate in nearly five years, the company said. Overall results, however, came in below analysts' expectations, and Amazon gave a cautious sales forecast for the holiday quarter. Its shares fell more than 6% in after-market trading. Chief executive Andy Jassy told investors in July that Amazon expects capital spending, mostly on AI, to total $220 billion this fiscal year, up from a $200 billion plan announced in February and well above the $128 billion spent last year.

Businesses are also changing how they use AI, the Hindustan Times reported, citing Yahoo Finance. Companies are choosing cheaper models and slowing their spending on AI tokens, the units of text that AI models process, which suggests demand for computing power may not keep growing indefinitely. If customers become more sensitive to price, technology firms will have to show that people will pay enough for AI services to make the investments profitable.

Google is also selling its in-house AI chips, known as Tensor Processing Units (TPUs), to outside companies, a growing challenge to market leader Nvidia, The Guardian reported. The Hindustan Times, citing Yahoo Finance, said Wall Street is also preparing for stock market listings by AI developers Anthropic, which could go public as soon as November 2026, and OpenAI, which is expected to pursue a listing, possibly in 2027.