Alphabet's Class A shares fell 12.6% Thursday, their worst day since the stock began trading more than 20 years ago, and the drop dragged the U.S. market lower. The decline followed a report showing weaker growth for the summer than analysts had expected from the company behind Google and YouTube. The S&P 500 slipped 0.3%, its first loss in four days, even though most stocks in the index rose.
Alphabet is one of the most influential stocks on Wall Street because of its size, which made its slide especially visible. The tech giant had been under pressure to at least meet analysts' growth expectations amid growing concern about how much it is spending on artificial intelligence. The company said late Wednesday that it burned through more cash during the latest quarter, measured as free cash flow, after its purchases of property and equipment topped $51 billion. The report raised questions about whether those huge investments will pay off.
Those worries extend beyond Alphabet. The entire AI industry has been caught up in a frenzy to build data centers and fill them with AI chips. Investors are increasingly concerned that the AI revolution may not produce as much profit and productivity as hoped. Future spending on data centers is also under pressure because borrowing money to buy more chips has become more expensive.
Alphabet's slide overshadowed what otherwise would have been a strong day for stocks. Four out of every five stocks within the S&P 500 climbed, and the index would have finished higher without Alphabet. Many companies rallied after reporting summer profits that beat analysts' expectations. KLA Corp., whose equipment helps make semiconductors, rose 5.5%. Eli Lilly climbed 6.6%, Mastercard rose 4.2% and Merck added 3.8%.
DoorDash gained 5.6% after saying it agreed to buy Instacart in a deal valuing the grocery delivery company at $17 billion. DoorDash also reported stronger profit and revenue for the latest quarter than analysts expected. Norwegian Cruise Line Holdings surged 13.4% after likewise topping expectations for summertime profit and revenue, benefiting from cruisers spending more money once aboard ship than the company had anticipated.
Overall, the S&P 500 fell 23.59 points to 7,720.39. The Dow Jones Industrial Average dropped 132.54 points, or 0.3%, to 52,342.56, and the Nasdaq composite tumbled 1.4%, or 365.13 points, to 26,184.72. Expectations for profit growth remain high across U.S. companies, which helped the S&P 500 set a record earlier this month despite high interest rates and other concerns weighing on stocks.
In the bond market, Treasury yields eased after a mix of reports on the U.S. economy. A preliminary report suggested overall growth may have accelerated more during the summer than economists expected, driven by consumer spending and businesses investing in AI. However, Americans' income growth was weaker in September than economists anticipated, and a measure of inflation worsened. Fewer U.S. workers applied for unemployment benefits last week, which could indicate few layoffs nationwide. The yield on the 10-year Treasury fell to 4.94% from 5.05% late Wednesday, pulling back from a peak above 5.30% earlier this month that was its highest level since 2002. A drop in oil prices also helped push yields lower, with Brent crude falling 0.8% to $110.80 a barrel.
Overseas, indexes rose in Europe after the European Central Bank held interest rates steady. Bank President Christine Lagarde also said she will resign in February, nine months before the end of her term. In Asia, indexes were mixed. South Korea's Kospi fell 1.2% as market heavyweight Samsung Electronics sank 4.1%, even though it reported a jump in profit.