Alphabet is Plunging More Than 10% After Its Earnings Disappointed. It’s Dragging The Nasdaq With It.

Alphabet shares are plummeting on Thursday after it reported a larger negative free cash flow than analysts had expected. The Nasdaq Composite is being dragged as a result, with the lackluster earnings rekindling fears about AI spending.

Alphabet was dropping more than 12% at 10:07 a.m. ET, while the Nasdaq Composite was falling 1.35% at the same time.

The company reported a larger negative free cash flow than analysts had expected. The figure stood at $9.07 billion for the third quarters, much higher than the $2.70 billion expected by analysts. The company kept its capital expenditures guidance for the next year unchanged: between $195 billion and $205 billion.

If the company falls more than 9.77% at the end of the session, it will be its worst post-earnings performance ever since going public in 2004.

The company is facing challenges from the rise of AI companies like OpenAI and Anthropic as their models take their queries outside Google. Gemini, the company's chatbot, has not been keeping up with ChatGPT and Claude.

Philipp Schindler, Alphabet's chief business officer, said the company's search business has been taking hits from lower monetization within the AI mode. He went on to say that Alphabet is "scaling" ads within the AI overviews and AI Mode products.

Also influencing the markets' performance on Thursday is the fact that Inflation climbed in line with expectations in September but stayed well above the Federal Reserve's 2% target.

The personal consumption expenditures price index climbed a seasonally adjusted 0.5% last month. The annual rate stood at 3.6%, slightly below the Dow Jones consensus.

The core PCE index, which excludes food an energy, gained 0.3% for the month and 3.1% for the year, in line with the consensus.

Gasoline and other energy goods largely led the increase, with consumers spending $45.7 billion more compared to last year as the war in Iran keeps prices elevated with no signs of abating. Transportation services, housing and utilities and food services and accommodation followed with less than $20 billion each.

The figure was released less than a day after the central bank kept rate unchanged, staying at 3.75%-4% and in line with market expectations. The vote was not unanimous, with two voters dissenting.

In its statement following the meeting, the Federal Open Market Committee claimed that "economic activity is expanding at a strong pace" and "while uncertainty remains elevated owing, in part, to geopolitical developments, domestic spending has been resilient."

"Productivity growth is strong, and capital investment is robust. Job gains have kept pace with the workforce, and the unemployment rate has changed little," the committee added.

However, it also noted that "inflation remains elevated" and the central bank will use upcoming information to " determine the policy stance appropriate to ensure a timely return of inflation to the Committee's 2 percent goal." "The Committee will deliver price stability," the document concluded.