Alphabet’s 12.8% Stock Plunge Dragges U.S. Markets Lower

The U.S. stock market turned negative on Thursday after Alphabet Inc. posted its steepest single-day decline since it began trading in 2004. The drop in shares for the parent company of Google and YouTube pulled down major indices, reversing a streak of four consecutive gains for the S&P 500.

Alphabet stock fell 12.8% in a move that signaled growing investor anxiety about the company's capital expenditure. The company reported late Wednesday that it spent more than $51 billion on property and equipment during the third quarter. This level of spending caused free cash flow to turn negative, a metric that tracks the cash a company generates after accounting for capital expenditures.

The market reaction was disproportionate because Alphabet is one of the largest companies by market capitalization. Its loss was the primary driver behind the S&P 500 falling 0.6%. The Nasdaq composite, which is heavily weighted toward technology stocks, tumbled 1.6%. The Dow Jones Industrial Average dropped 269 points, a decline of 0.5%.

Investors are scrutinizing whether massive investments in artificial intelligence infrastructure will yield sufficient returns. The tech sector is currently navigating a period of high capital intensity as companies build data centers and purchase AI chips. Rising borrowing costs have further complicated these expansion plans, increasing the pressure on firms to justify their spending.

Despite the broad market decline, most individual stocks in the S&P 500 actually rose on the day. The index would have finished higher had it not been for the drop in Alphabet shares. This divergence highlights how concentrated the market's sentiment is on a few massive technology holdings.

Several other companies reported stronger summer profits than analysts had forecast, leading to gains in their respective stocks. KLA Corp., a semiconductor equipment maker, rose 5.1% after beating expectations. Eli Lilly shares climbed 6%, while Mastercard added 4.4% and Merck gained 3.6%.

DoorDash shares rose 4.9% after the company announced an agreement to acquire Instacart in a deal valued at $17 billion. DoorDash also reported profit and revenue figures for the quarter that exceeded analyst estimates. Norwegian Cruise Line Holdings saw its stock jump 13.8% after it surpassed expectations for summer profit and revenue, driven by higher consumer spending aboard its ships.

In the bond market, yields decreased following a series of mixed economic reports. The yield on the 10-year U.S. Treasury fell to 4.98% from 5.05% late Wednesday. This decline followed a period where the yield had spiked above 5.30% earlier in the month, reaching its highest level since 2002.

The drop in bond yields was aided by a decrease in oil prices. Brent crude, the global benchmark for oil pricing, fell 0.8% to $110.80 per barrel. In Europe, stock indexes rose after the European Central Bank held interest rates steady. Christine Lagarde, the bank's president, announced she will resign in February, nine months before her current term concludes.

In Asia, markets moved in opposite directions. South Korea's Kospi index fell 1.2% as Samsung Electronics shares dropped 4.1%. The decline in the tech giant's stock occurred despite the company reporting a jump in profits, contributing to the mixed regional sentiment.