Alphabet's 12.8% Plunge Pulls US Markets Lower Amid AI Spending Concerns

Alphabet shares fell 12.8% on Thursday, positioning the stock for its steepest single-day decline since it began trading more than 20 years ago. The drop dragged the broader U.S. market lower as investors reassessed the cost of the company's artificial intelligence infrastructure.

The S&P 500 index declined 0.6% toward its first loss in four days. The Nasdaq composite dropped 1.6%, while the Dow Jones Industrial Average lost 269 points, a 0.5% decrease. Without Alphabet's slide, the S&P 500 would have finished the session higher, even though the majority of stocks within the index were rising.

The tech giant reported late Wednesday that its free cash flow turned negative for the summer quarter. The company spent more than $51 billion on property and equipment, a figure that intensified scrutiny over the return on its massive AI investments.

Analysts had expected at least a match to growth forecasts, but the earnings report highlighted the heavy capital requirements of building data centers and purchasing AI chips. The spending comes as borrowing costs remain high, pressuring future capital expenditure plans across the industry.

Other technology and consumer names moved in the opposite direction. KLA Corp. stock rose 5.1% after the semiconductor equipment maker reported stronger summer profits than expected. Eli Lilly shares climbed 6%, while Mastercard gained 4.4% and Merck added 3.6%.

DoorDash shares jumped 4.9% following the announcement that it would acquire Instacart in a deal valuing the grocery delivery service at $17 billion. The company also beat analyst estimates for profit and revenue in the latest quarter.

Norwegian Cruise Line Holdings surged 13.8% after topping expectations for summertime profit and revenue. The cruise line benefited from passengers spending more money onboard than the company had projected.

Treasury yields eased in the bond market as investors processed a series of mixed economic reports. The yield on the 10-year Treasury note fell to 4.98% from 5.05% late Wednesday. This follows a period where the yield had climbed above 5.30% earlier in the month, reaching its highest level since 2002.

Oil prices also contributed to the lower yields, with Brent crude falling 0.8% to $110.80 per barrel. In Europe, stock indexes rose after the European Central Bank held interest rates steady. Bank President Christine Lagarde announced she would resign in February, nine months before her current term ends.

Asia's markets showed mixed results. South Korea's Kospi index dropped 1.2% as Samsung Electronics fell 4.1%, despite the chipmaker reporting a jump in profit.