Alphabet Closes Down 12.6% at $283.82 After Earnings, With Search Growth at 12% and a SpaceX Mark Cutting EPS 55 Cents

Since Alphabet reported third-quarter results after the close on Wednesday, Oct. 28, the stock's after-hours slide of about 10% has deepened into a full-session rout: Class A shares closed Thursday at $283.82, down $41.07, or 12.64%, on volume of 139.7 million against an average of 27.8 million. Class C shares fell about 12.3%. The 52-week range is now $270.70 to $408.61.

CNBC called it the steepest one-day drop on record for the stock. Early in the session, the Irish Times put the value erased at about $500 billion. That would be the second-largest single-day market-value loss in Wall Street history, behind Nvidia's $593 billion in January 2025.

The numbers behind the drop

Revenue rose 25% to $127.6 billion. Operating income rose 30% to $40.6 billion. Diluted EPS was $2.12, down from $2.87 a year earlier, against a consensus of roughly $3.02.

Google Services revenue was $96.3 billion, below the $98.4 billion analysts expected. Search and other revenue grew 12% to about $63.4 billion, short of estimates near $65 billion and down from 17% growth in the second quarter. YouTube ads brought in $11.2 billion against a $11.4 billion estimate.

Google Cloud was the exception. Revenue doubled to $30.7 billion, up 103%, beating the $28.7 billion estimate. Cloud operating income hit $11.1 billion, and contracted backlog reached $561 billion, up from $514 billion in the prior quarter.

Search: more queries, less revenue

Alphabet said search query growth was the strongest in five years. Revenue did not keep pace.

Chief Business Officer Philipp Schindler acknowledged that queries in AI Mode, the conversational answer format, bring "lower monetisation" than traditional results. Executives also blamed currency moves, which they said would hurt more in the fourth quarter, and softer retail ad spending in Asia.

Management says monetization will follow as the format matures. Alphabet has not disclosed what share of queries now get AI Mode responses or how the feature changes revenue per query.

"Search is where the concern sits," said David Wagner, head of equities at Aptus Capital Advisors. "In a market worried about AI chatbots cannibalising its key franchise, investors need to see it accelerating, not decelerating."

Gene Munster of Deepwater Asset Management told CNBC's "Fast Money" that if personalized AI bots take off, they could become "the starting point of commerce, which impacts where Google is."

Cash burn and the capex path

Capital expenditure was $51.4 billion in the quarter, and $132.0 billion for the first nine months. Free cash flow was negative $9.1 billion, after negative $5.9 billion in the second quarter, which was the first negative quarter since Alphabet went public.

Full-year capex guidance stayed at $195 billion to $205 billion. CFO Anat Ashkenazi said spending will rise further in 2027 but gave no range. At the top of this year's guidance, fourth-quarter capex would be as high as $73.1 billion.

The spending has been funded partly with debt. In June, Alphabet announced plans to raise about $85 billion in its first share sale in more than two decades.

The SpaceX mark

Alphabet's release disclosed an $8.7 billion loss on equity securities that cut diluted EPS by $0.55. It did not name the holding. Ashkenazi did, on the call: other income and expense was negative $8.2 billion, "due primarily to unrealized loss from our investment in SpaceX from a decline in its stock price in the third quarter."

SpaceX shares fell from $170.86 at the end of the second quarter to $150.86 at the end of the third, about 11.7%. Nothing was sold, and no cash left the company. The loss reduced Alphabet's tax provision by $1.9 billion.

Stripping out the $0.55 gives roughly $2.67 per share, still about $0.34 below consensus. The SpaceX mark explains much of the headline miss but not all of it.

Invezz estimated Alphabet holds about 550 million SpaceX shares, which would imply a pre-tax hit near $11 billion. Alphabet has not disclosed its share count or ownership percentage. The company's second-quarter 10-Q showed $80.0 billion of SpaceX shares under short-term sale restrictions and another $14.1 billion restricted through the third quarter of 2027.

The swing runs both ways. The second quarter included a gain of about $98 billion on equity securities.

The argument for the stock

Some analysts argue the market overreacted. The Motley Fool's analysis said most of the miss was a paper loss and that operating income, which excludes investment gains and losses, is the better gauge. It called Cloud the standout.

Invezz presented both a buy and a sell case. The bull case calls the SpaceX hit "mostly unrealized accounting noise." The bear case ties the miss to rising capex and weaker search, and warns that investors will keep punishing the cash burn.

What comes next

U.S. markets open at 9:30 a.m. ET today, Friday, Oct. 30, when the first trading after Thursday's close begins. The next hard data points are the fourth quarter. SpaceX closed at $145.23 on Oct. 28, below the $150.86 quarter-end mark. If it finishes December under $150.86, Alphabet books another unrealized loss.

The larger open question is whether AI Mode revenue per query catches up with its query growth while capex climbs toward as much as $73.1 billion in a single quarter.