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Google search, the business that paid for two decades of Alphabet\u2019s ambitions, is now valued at about 10 times earnings, by Bank of America\u2019s count. The S&P 500 trades at 18.7x forward earnings, according to FactSet. Energy, the market\u2019s cheapest sector, trades at 13x.<\/p>\n
That math pummeled the stock Thursday. Alphabet\u2019s Class A shares fell 12.6% to $283.82, their worst day since they began trading in 2004. The decline wiped out about $482 billion in market value. Previously, Alphabet\u2019s worst day was in March 2020 when the stock dropped 11.6%.<\/p>\n
The trigger was the search business\u2014the same juggernaut that turned Google into a verb. Search and other revenue grew 12% in the third quarter to $63.35 billion. Analysts expected 15%. That miss on growth momentum compares to 17% growth in the second quarter and 19% in the first. Meanwhile, Google Cloud\u2019s revenue more than doubled, up 103% to $30.71 billion. But Alphabet spent $51.4 billion on capital expenditures in the quarter, more than double a year earlier, and free cash flow came in at negative $9.1 billion, according to its earnings release.<\/p>\n
Three months ago, BofA analyst Justin Post had the whole company at about 22x his 2027 earnings estimate, which he called in line with historical averages. On Thursday, at the after-hours price of about $291, he had it at about 19x, with core search at about 10x inside that. He kept his Buy rating, cut his price target to $380 from $430, and lowered the multiple he\u2019s willing to pay to 24 times from 27, citing the \u201cslowdown in high-margin search growth.\u201d<\/p>\n
\u201cSearch AI transition will fuel the bears,\u201d Post and co-author Nitin Bansal wrote.<\/p>\n
\u201cThe bears will argue this is the first quarter that AI is starting to seriously hurt their search business,\u201d Pivotal Research CEO Jeffrey Wlodarczak said, as previously reported by Yahoo Finance.<\/p>\n
More searches, slower growth<\/p>\n
The search slowdown comes even as Google says more people are searching. \u201cOur year-over-year query growth rate is the highest it\u2019s been in the last 5 years,\u201d CEO Sundar Pichai said on Wednesday\u2019s earnings call.<\/p>\n
BofA estimates search growth, excluding currency moves, slowed three percentage points from the prior quarter, \u201cdespite accelerating y\/y query growth.\u201d The analysts put most of that on a comparison that was two points tougher than last quarter\u2019s. They wrote that Google indicated the shift of traffic to AI Overviews, the AI-written summaries at the top of results, was a small headwind in the quarter. They added that it\u2019s \u201clikely bigger\u201d internationally, where advertising loads in those summaries are just starting to ramp.<\/p>\n
Google\u2019s answer is more ads inside the summaries. \u201cWe\u2019re now scaling high-quality ads within AI Overviews and AI Mode to more users and queries,\u201d chief business officer Philipp Schindler said on the call. \u201cThis includes taking our monetization footprint global for the first time.\u201d<\/p>\n
The summaries change what users do on the page. A Pew Research Center study published in July 2025 found that users who saw an AI summary clicked a traditional search result on about 8% of visits, compared with 15% when no summary appeared. That study measured clicks to websites, not Google\u2019s ad revenue.<\/p>\n
Paying for the cloud<\/p>\n
Most of the gap between Alphabet trading at 19x earnings and search\u2019s 10x earnings comes from the boost in value from Google Cloud. Its operating margin was 36.2% in the quarter, up from 23.7% a year earlier. There\u2019s also another revenue stream to add in to the sum-of-the-parts. BofA now models $75 billion in 2027 sales of TPUs, Google\u2019s in-house AI chips, to outside customers.<\/p>\n
The cloud business is also where the capex goes, and the bill keeps growing. Chief financial officer Anat Ashkenazi said in July that Alphabet expects capex \u201cto increase significantly in 2027.\u201d The company confirmed its full-year capital spending forecast this week and indicated that capex is expected to reach $200 billion in 2026, and then rise to $300 billion in 2027. The quarter\u2019s earnings also took a one-time $8.7 billion mark-to-market hit on Alphabet\u2019s SpaceX stake, which BofA said cost 55 cents a share.<\/p>\n
The founders took the hit on paper too. Larry Page and Sergey Brin lost an estimated $60 billion combined, according to Forbes estimates.<\/p>\n
A 2027 story<\/p>\n
BofA\u2019s bull case runs on a calendar. Tougher comparisons last through the second quarter of 2027, \u201cwhich could make Google a 2H\u201927 story,\u201d the analysts wrote. They also see \u201cpotential for a growth uptick as early as 1Q,\u201d helped by international ads in AI Overviews.<\/p>\n
Their model doesn\u2019t count Alphabet\u2019s moonshots at all. \u201cEarly-stage bets like Waymo & quantum computing offer meaningful long-term optionality,\u201d they wrote, \u201cnot in valuation.\u201d<\/p>\n
Generative AI was used for research assistance and\/or transcription of this article. The reporter independently reported and verified the factual claims in this article, and a human editor reviewed it before publication.<\/p>\n
#Alphabets #worst #day #leaves #Google #search #valued #fossil #fuel #stocks #BofA<\/p>\n","protected":false},"excerpt":{"rendered":"
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