Alphabet's 12.8% plunge drags S&P 500 to its first loss in four days

Alphabet shares fell 12.8% on Thursday, marking the company's steepest single-day drop since it began trading more than 20 years ago. The sell-off dragged the S&P 500 down by 0.6%, ending a streak of four consecutive gains. Without Alphabet's decline, the benchmark index would have closed higher for the day.

The stock's sharp retreat stems from the company's summer earnings report, released late Wednesday. Alphabet revealed that its free cash flow turned negative because purchases of property and equipment exceeded $51 billion. This spending surge reflects the heavy capital outlay required to build artificial intelligence infrastructure, a cost that is now straining the company's bottom line.

Investors are reassessing the return on investment for the entire AI sector. Concerns have grown that the massive buildout of data centers and chip purchases may not yield the projected profits or productivity gains. Additionally, rising borrowing costs are making future expansions more expensive to finance. These factors are creating pressure on tech giants that have committed to long-term AI bets.

The broader market showed mixed signals despite the index decline. The Nasdaq composite tumbled 1.6%, while the Dow Jones Industrial Average slipped 269 points. However, the majority of individual stocks within the S&P 500 and across Wall Street actually rose. Eli Lilly jumped 6%, Mastercard gained 4.4%, and Merck added 3.6% as these companies reported stronger summer profits than analysts anticipated.

DoorDash shares climbed 4.9% after the company announced an agreement to acquire Instacart in a deal valued at $17 billion. DoorDash also beat expectations for profit and revenue. Norwegian Cruise Line Holdings surged 13.8% after topping forecasts, driven by higher-than-expected spending by passengers on board. KLA Corp, a semiconductor equipment maker, rose 5.1% following a strong earnings report.

Bond yields eased following a series of conflicting economic data. The yield on the 10-year Treasury fell to 4.98% from 5.05% late Wednesday. This pullback follows the yield topping 5.30% earlier this month, its highest level since 2002. Preliminary data suggests the U.S. economy grew faster than expected during the summer, fueled by consumer spending and business investment in AI. However, September income growth was weaker than projected, and inflation measures worsened.

Fewer U.S. workers applied for unemployment benefits last week, indicating limited layoffs across the country. Oil prices also helped lower bond yields, with Brent crude falling 0.8% to $110.80 per barrel. In Europe, indexes rose after the European Central Bank held interest rates steady. Christine Lagarde, the bank's president, stated she will resign in February, nine months before her term ends. In Asia, markets were mixed, with South Korea's Kospi index dropping 1.2% as Samsung Electronics shares sank 4.1% despite a jump in profit.