Alphabet Stock Crash Amid Disappointing Cloud Earnings

On Wednesday, Google-parent Alphabet (GOOGL) shares hit a one-year low after poor cloud earnings, wiping $165.00 million in market cap.

Alphabet shares shed -9.51% to $125.61 apiece, marking their worst day since the Covid pandemic began in March 2020. Furthermore, analysts anticipate a further -2.32% decline to $122.70 per share in the upcoming session.

The third-quarter earnings report revealed a cloud operating income of $266.00 million, 38.71% below estimates of $434.00 million. With the Google search engine nearing its peak, stakeholders hoped for Google Cloud to take the lead on growth.

Fortunately, Alphabet’s cloud unit reported profits for the first time this year, mainly from dealings with artificial intelligence (AI) startups. However, its momentum halted as the gap between Alphabet and rivals Microsoft (MSFT) and Amazon (AMZN) widened.

Investors raised concerns since they consider the multinational tech giant’s position in the cloud computing market critical to its future. Hence, shareholders turned pessimistic despite the steady Q3 earnings report topped by an 11.00% revenue growth.

In addition, Alphabet posted a quarterly revenue of $76.69 billion, 0.95% above market forecasts of $75.97 billion. Moreover, the $1.55 earnings per share (EPS) were 6.90% above the $1.45 estimated by the London Stock Exchange Group (LSEG).

Likewise, net income rose by 41.73% from $13.90 billion to $19.70 billion. Additionally, advertising revenue increased by %9.49% from $54.48 billion to $59.65 billion.

Cloud Earnings Miss Show Alphabet Trailing in AI

Ruth Porat, Alphabet’s CFO, blamed the lower-than-expected cloud earnings on rampant cost-cutting by small and medium businesses (SMEs). Wall Street analysts emphasized the company’s failure to attract a sizable audience with its AI cloud offerings.

In contrast, Microsoft’s Azure Cloud earnings grew by 29.00% year-over-year, exceeding Wall Street’s 26.00% growth expectations. Microsoft CFO Amy Hood attributed the results to the accelerating global AI consumption.

Bank of America (BoA) analysts said Alphabet could leverage Google’s competitive advantage by focusing on integrating AI tools with advertisements. Google Chief Business Officer (CBO) Philipp Schindler agreed, adding that early tests showed 54.00% more reach and 42.00% lower cost.