AI Investment Skepticism Flares Up Again... Alphabet Suffers Biggest Drop Since Its IPO (Roundup)

Alphabet Loses 670 Trillion Won in Market Value
Amazon Also Faces Growing AI Investment Burden
KOSPI Triggers Sell-Sidecar Early in the Session

Reuters-Yonhap News

Shares of Alphabet, Google's parent company, plunged on concerns about excessive investment in artificial intelligence (AI) and weakening profitability in its search business. As skepticism over AI investment spread to other Big Tech companies, Amazon and Intel shares also tumbled. The fallout extended to South Korea's stock market, where semiconductor blue chips on the KOSPI plunged and a sell-sidecar was triggered during the session.

Alphabet Loses 670 Trillion Won in Market Value... 'AI Skepticism' Flares Up Again

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According to CNBC on Thursday, October 29, Alphabet shares closed at $283.82 on the Nasdaq, down 12.64% from the previous session. The company lost $500 billion (about 670 trillion won) in market value in a single day, marking the second-largest one-day decline in market capitalization on record, following Nvidia's $539 billion loss in January last year.

Alphabet reported its third-quarter results for fiscal 2026 after the market closed the previous day, drawing attention to increased spending amid a surge in AI investment. Alphabet's capital expenditures (CAPEX) in the third quarter totaled $51.355 billion, up 114% from a year earlier and 100% from the second quarter. However, free cash flow (FCF) was negative by $9.065 billion, a larger deficit than the $5.855 billion recorded in the second quarter.

Investor sentiment deteriorated further after massive contingent commitments related to infrastructure development, including AI data centers, came to light. According to Bloomberg, Alphabet's contingent commitments related to its AI infrastructure business, which it may be required to fulfill under certain conditions, totaled $98.5 billion, up $23 billion from the second quarter. These commitments are separate from the $1 trillion in committed spending on obligations such as purchase commitments and future leases that Google had previously disclosed.

Profitability from search advertising, one of Alphabet's main sources of revenue, also fell short of market expectations. Alphabet's search advertising revenue in the third quarter was $63.4 billion, up 12% year over year but below the market estimate of $64.9 billion. Its growth rate has also slowed from nearly 20% early this year. Concerns are mounting that search advertising revenue is weakening as AI Mode, which provides answers directly without linking to external websites, gains popularity over the traditional search engine, which directs users from the Google homepage to outside sites. Google's Chief Business Officer Philip Schindler also said, "The lower monetization of AI Mode affected the growth rate of search revenue."

The Alphabet shock reignited skepticism about AI investment, sending all major U.S. stock indexes lower. On Thursday, the Dow Jones Industrial Average closed at 52,342.56, down 0.25% from the previous session; the S&P 500 fell 0.30% to 7,720.39; and the Nasdaq dropped 1.38% to 26,184.72.

Amazon Also Faces AI Investment Burden; Intel's Earnings Outlook Worsens

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Following Alphabet, Amazon was also weighed down by concerns that increased investment in AI infrastructure would weaken its cash flow. Amazon reported that its third-quarter revenue this year, released after the market closed on Thursday, rose 12% year over year to $201.9 billion. This was slightly below Wall Street's estimate of $202.2 billion. Operating income rose 61% year over year to $28.1 billion, but net income fell 2.35% to $20.7 billion.

Concerns were raised that Amazon's net income was declining even as it maintained its plan to invest $220 billion in AI infrastructure. Amazon spent $77.3 billion on property and equipment in the third quarter alone, more than double the $35.1 billion spent in the same quarter a year earlier. It also raised an additional $48.1 billion in long-term debt during the third quarter. As with Alphabet, concerns about excessive AI investment undermined investor sentiment, sending Amazon shares down more than 7% in after-hours trading.

Intel, once considered a major beneficiary of AI, also came under pressure amid concerns about worsening profitability. According to Bloomberg, Intel shares plunged more than 17% in after-hours trading on Thursday. Investor sentiment deteriorated in particular because revenue was expected to fall short of market forecasts amid concerns about a slowdown in the PC market, a key segment, beginning in the fourth quarter.

Intel reported third-quarter revenue of $16.5 billion, in line with market expectations. However, its fourth-quarter revenue forecast of $15 billion to $16 billion fell short of Wall Street's estimate of $17 billion. The gross margin is also projected to fall from 44.1% in the third quarter to 37% in the fourth.

Intel cited a slowdown in the PC market, component shortages caused by memory-chip supply-chain problems, and the suspension of operations at its Israel plant due to the conflict in the Middle East as factors behind its weaker fourth-quarter outlook. As global semiconductor demand shifts toward AI infrastructure, Intel's key revenue segments, servers and PCs, are facing a shortage of semiconductor supplies, which is instead holding back those markets. Intel CEO Lip-Bu Tan said, "We are moving with urgency to secure the supply needed to increase semiconductor sales."

South Korean Market Also Hit Immediately... Sell-Sidecar Triggered

The sell-sidecar was triggered early in the session in South Korea's stock market as the plunge in U.S. AI-related shares reverberated across the market. The KOSPI opened at 5,760.35 on Thursday, down 2.99% from the previous trading day, and was trading at 5,641.99 as of 10:10 a.m., down 4.98%. The sharp intraday drop of more than 4% triggered a temporary suspension of program sell orders, known as a sell-sidecar. It was the first sell-sidecar on the KOSPI in 11 trading days, since October 15, when the index plunged 7.57%. At the same time, the KOSDAQ was trading at 727.85, down 3.37%.

iM Securities analyzed that the share prices of South Korean companies have recently been influenced significantly not only by earnings figures but also by shareholder-return policies and future earnings outlooks. It therefore expects stock performance to diverge depending on assessments of third-quarter results, the visibility of earnings improvement in the fourth quarter, and whether future earnings forecasts are maintained or raised.

Kiwoom Securities offered a similar outlook. Regarding Samsung Electronics, whose shares plunged more than 6% intraday on Wednesday, it said the lack of specific shareholder-return measures had disappointed the market. However, it noted that concerns about industry conditions had eased because the memory-chip supply shortage is expected to persist through 2028 and long-term supply agreements (LTAs) are expanding. It therefore assessed that the share price was unlikely to fall below its previous low.

As fatigue with AI-led stocks grows, some market watchers are advising investors to turn to non-Big Tech defensive stocks with resilient earnings. "Even in a volatile market, it may be worth watching the construction and defense sectors, which have been falling out of the market's focus in terms of foreign investor flows," said Han Ji-young, a researcher at Kiwoom Securities. "Both sectors have seen valuation concerns ease after a series of sharp declines. Expectations for expanded housing supply and the normalization of defense exports in the fourth quarter may have contributed to net foreign buying. Taking advantage of the gap between the extent of the declines and foreign investor flows in these sectors could also be a short-term alternative."

This content was produced with the assistance of AI translation services.