Alphabet's Record Plunge Sparks AI Fears, Dragging Tech Stocks Lower

Tech stocks experienced a downturn, primarily influenced by a historic decline in Alphabet's shares. This slump was triggered by disappointing financial results that reignited investor anxieties regarding the impact of artificial intelligence on Alphabet's core business operations. The Nasdaq 100, a tech-heavy index, saw a 1.4% decrease on Thursday, while the S&P 500 fell by 0.3%, interrupting a three-day winning streak for both indices.

Alphabet's stock plummeted by 13%, marking its most significant single-day drop on record and one of the largest market value erosions in a single day for any U.S. stock. This occurred after the company disclosed underwhelming search and advertising sales figures, amplifying concerns about AI's potential threat to its primary revenue streams. Previously, Nvidia held the record for the largest one-day market value loss, exceeding $590 billion in January 2025.

Michael O’Rourke, chief market strategist at JonesTrading Institutional Services LLC, commented in a note on Wednesday, stating, “After missing forecasts on essentially every key metric except cloud revenue tonight, Google is playing the AI Hunger Games from a position of weakness.” He further elaborated, “Disappointing results in advertising, a business it and Meta Platforms dominate globally, illustrate the key risk investors fear.”

In contrast, stocks outside the technology sector performed well. Approximately 400 stocks within the benchmark index saw gains, and the S&P 500 Equal Weight Index advanced by 1.2%. Chris Larkin at E*Trade from Morgan Stanley observed, “AI uncertainty may not have run its course yet, but the damage to the broad market has so far been limited.” He added, “Today’s price action is a microcosm of what the stock market has been experiencing for much of October — concerns about the AI trade weighing on the tech and communication services sectors, but leaving other areas of the market relatively unscathed.”

The recent earnings reports have cast renewed doubt on the viability of the AI trade, raising questions about the ability of substantial investments in AI technology to yield timely returns that justify current high valuations. The semiconductor sector was notably affected, with the Philadelphia Semiconductor Index declining by 1.4%. Software companies also experienced a downturn on Thursday, following disappointing quarterly results from ServiceNow and Fortinet, which exacerbated broader market concerns. ServiceNow shares dropped 27%, its worst performance on record, while Fortinet fell 20%, its most significant decline since August 2025.

Investors found some encouragement from Microsoft, which released its earnings after the market close on Wednesday. The company reported robust growth in its cloud business while maintaining control over its capital expenditures. Despite this, Microsoft's shares dipped 0.2% on Thursday, even after announcing a successful $25 billion bond offering that saw strong demand.

Meanwhile, Caterpillar, a manufacturer of power-generation equipment essential for data centers, saw its stock price fall by 9.3%, its steepest decline since March 2020, after its third-quarter earnings report narrowly exceeded expectations. Outside of AI-related news, DoorDash shares rose 5.6% following an earnings beat and the announcement of its $17 billion acquisition of Instacart.

The broader market indices were also impacted by comments from President Donald Trump at a rally on Thursday, where he suggested the conflict in Iran would conclude imminently. This statement followed a Wall Street Journal report earlier in the week indicating that the U.S. had advised several Gulf Arab nations to prepare for a brief but intense military operation post-midterm elections.