Alphabet shares fell about 13% on Thursday, wiping roughly $500 billion off Google’s parent company after quarterly results missed expectations and raised concerns about artificial intelligence’s impact on its core search business.

It was the steepest daily fall since Google’s flotation in 2004, surpassing the previous record decline of 11.63% in March 2020. Selling began in after-hours trading on Wednesday following publication of the third-quarter results. The technology-heavy Nasdaq index fell 1.4% as Alphabet’s losses weighed on the wider sector.

Alphabet missed forecasts for both revenue and earnings for the first time in almost four years. Revenue rose 25% to $127.58 billion, below the $128.22 billion expected. Adjusted earnings per share were $2.67 against a forecast of $3.02, while net profit fell to $26.17 billion from $34.98 billion a year earlier. Negative free cash flow reached $9.07 billion, compared with an expected shortfall of $2.7 billion.

The central concern was search advertising. Revenue increased 12% to $63.35 billion but missed the $64.96 billion forecast. That shortfall has been interpreted in market commentary as an early indication that AI is eroding Google’s main business. Rival chatbots, including OpenAI’s ChatGPT and Anthropic’s Claude, are drawing some searches away from Google.

There is also a commercial challenge within Google’s own products. Chief business officer Philipp Schindler attributed part of the shortfall to lower monetisation in AI Mode and said the company was expanding advertising across its AI products. The results establish that search revenue fell short of expectations, rather than quantify how much of that gap resulted from competition or changes within Google.

Meanwhile, spending on AI infrastructure continues to rise. Quarterly capital expenditure totalled $51.36 billion, and Alphabet maintained its annual forecast of $195 billion to $205 billion. Its Israeli chief financial officer, Anat Ashkenazi, said capital expenditure was still expected to increase significantly in 2027. Estimates put next year’s spending above $300 billion.

Cloud provided a counterpoint: divisional revenue more than doubled to $30.7 billion, exceeding forecasts. That growth sits alongside substantial spending commitments and a sharp increase in long-term debt, which reached $125.1 billion, up from $21.6 billion a year earlier.