Google’s parent company had a very bad Thursday. Alphabet shares fell 12%, erasing a record $460 billion of market value, after investors learned the company burned through cash last quarter and that its new AI search feature is making less money than the old one.

The sell-off dragged the tech-heavy Nasdaq down 1.3%, according to The Financial Times. If Alphabet’s drop holds until the close, it will be the second-largest one-day loss of market value in Wall Street history. The record still belongs to Nvidia, which lost $593 billion in January 2025.

The most striking number in the earnings report was not profit but cash flow. In the three months to the end of September, Alphabet’s cash flow was negative $9.1 billion. That is worse than analysts expected, and it is only the second negative quarter since Google went public in 2004.

The cause is spending on AI. Capital expenditure, which covers things like data centers and computer chips, hit $51.3 billion in the quarter, up from $44.9 billion in the previous one.

The chief financial officer, Anat Ashkenazi, said the company still expects to spend as much as $205 billion this year. That would mean up to $73.1 billion in the final quarter alone.

A one-off item made the quarter look worse than usual. Alphabet paid $5.2 billion in cash to settle a 2018 European regulatory fine.

Even so, the underlying spending is the bigger story, and the company said it has signed commitments worth more than $1 trillion for data centres, leases, equipment and energy.

Paying for all this has meant a change of habits. Alphabet has taken on tens of billions of dollars in debt. In June it said it would raise around $85 billion by selling new shares, its first share sale in more than 20 years, after a long stretch of buying its own shares back.

The second worry is Google’s main moneymaker. Revenue in its search advertising division rose 12% to $63.4 billion.

Philipp Schindler, Google’s chief business officer, acknowledged the reason. “AI mode” gives users a written, conversational answer instead of a list of links, and people click fewer ads when they get it.

Schindler said this leads to “lower monetization.” In plain terms, Google’s AI product is taking users away from the product that pays for everything else.

Total revenue rose 25% to $127.6 billion, slightly below the average analyst forecast. Net income fell 25% to $26.2 billion, well short of the $37.3 billion analysts expected. Part of that came from investment losses.

Alphabet owns a stake in SpaceX, which lost about 4% of its value during the period, and the company booked an $8.7 billion net loss on its equity investments.

Operating income, which leaves out those investment swings, rose 30% to $40.6 billion. That still missed expectations of $43.2 billion.

The cloud business was the bright spot. Its sales doubled to $30.7 billion, helped by demand for Google’s own AI services and by selling computing power to other companies, including AI start-up Anthropic.

Microsoft also reported this week and also spent heavily, with capital expenditure of $45.2 billion. But strong growth in its Azure cloud business pushed revenue and profit past estimates, and it still produced $18.6 billion in free cash flow.

Its shares slipped 1.4%, a small move next to Alphabet’s.

Google has pitched its “full-stack” approach as an advantage, since it builds its own chips, data centres and AI models and sells them through apps that billions of people already use.

Chief executive Sundar Pichai has faced criticism for being slow to move on AI and letting start-ups such as Anthropic and OpenAI get ahead in selling to businesses.

Pichai said two new versions of its top Gemini model, called Argon and Carbon, have closed the gap in coding, finance and cyber security, and should help Alphabet win back market share.

Investors on Thursday were not willing to take that on trust. They want to see AI spending turn into growth, and for now Alphabet is spending more cash than it brings in while its best business shows signs of slowing.