Alphabet Stock Plunge Drags US Market Lower

A substantial decline in Alphabet's stock on Thursday dragged the U.S. stock market lower, as the company, parent of Google and YouTube, reported slower growth for the summer than analysts had anticipated. The results intensified concerns about the profitability of its extensive investments in artificial intelligence technology.

The S&P 500 fell 0.3% and was on pace for its first loss in four days, while the Nasdaq composite tumbled 1.2%. The Dow Jones Industrial Average experienced a more modest decrease of 0.2%, or 104 points, as of 11:15 a.m. Eastern time. The majority of other stocks on Wall Street saw gains.

Alphabet, one of Wall Street's largest and most influential companies, was down 11.8% and heading toward its worst trading day in over two decades. The company faced pressure to meet growth expectations amid significant spending on AI.

Alphabet reported an increase in cash expenditure during the latest quarter, with capital expenditures for property and equipment exceeding $51 billion. This measure, known as free cash flow, indicated a higher outflow of funds.

The broader AI industry is experiencing increased scrutiny. A frenzy to build data centers and equip them with AI chips has led to concerns that the AI revolution might not yield the expected profits and productivity. Furthermore, future spending on data centers faces pressure due to the rising cost of borrowing money for chip acquisition.

If not for Alphabet's sharp decline, the S&P 500 would have closed higher for the day.

Despite the overall market pressure, several companies reported stronger-than-expected profits for the summer. KLA Corp., a supplier of equipment for semiconductor manufacturing, saw its stock rise 6.7%. Eli Lilly climbed 6.4%, Mastercard increased by 4.7%, and Merck added 5.1%.

DoorDash's stock rose 6.6% following the announcement of its agreement to acquire Instacart for $17 billion. The food delivery company also reported profit and revenue for the latest quarter that surpassed analyst expectations.

Norwegian Cruise Line Holdings experienced a significant increase of 14.1% after also exceeding expectations for its summer profit and revenue. The company benefited from increased onboard spending by passengers, among other factors.

Expectations for broad profit growth among U.S. companies remain high, which has supported the S&P 500 in setting a record earlier this month despite prevailing concerns about high interest rates and other market challenges.

In the bond market, Treasury yields eased following a series of mixed economic reports from the U.S. The yield on the 10-year Treasury fell to 4.98% from 5.05% late Wednesday, continuing a general pullback from its recent peak above 5.30%, the highest level since 2002.

A drop in oil prices also contributed to lower yields. Brent crude oil prices sank 2% to $109.42 per barrel.

Globally, European stock indexes rose after the European Central Bank maintained its interest rates. In Asia, markets were mixed, with South Korea's Kospi falling 1.2% due to a significant drop in Samsung Electronics' stock, despite the tech giant reporting a profit increase.