Here's why Alphabet stock plummeted today

Google’s parent company Alphabet is picking up the pieces of a pretty rough day today. Its stock slipped 12%, which is the biggest one-day plunge the company’s seen since going public 22 years ago.

That’s half a billion dollars in lost market value — the second-biggest market value loss ever, behind Nvidia’s slump last year. It’s all because of a disappointing third-quarter earnings report. Ad sales weren’t great and revenue didn’t meet expectations. The whole situation has investors worried about the beginning of an AI-driven downward spiral for Google.

Think about when you’d look up something on the internet in 2022. “Googling” was the go-to verb.

“Their brand name was associated with the action of search,” said Michael Smith, an information technology and public policy professor at Carnegie Mellon University.

He said Google monopolized internet search. But in the age of chatbots, that’s no longer true.

“Instead of, I'm competing with Bing and a bunch of other sites that we've never heard of before, I'm now competing against OpenAI and Anthropic and Meta and everybody else who actually have competitive products,” Smith said.

Google’s other problem is chatbots charge subscriptions. Google is free, because it relies on ads.

“Ad revenue has been the primary … revenue source, right? And that depends on people coming and spending time and clicking on things,” said Chirag Shah, a professor at University of Washington’s Information School.

He said as Google users rely more on AI overviews, they’re not clicking on ads.

“Right now what I see is Google cannibalizing its own product. But they have to because if they don't, somebody else will,” he said.

That “cannibalizing” is what Shah called a transition period.

Tom Davenport, a Babson College professor focused on AI, said Alphabet’s double-digit stock price plummet is an overreaction. He thinks Google’s revenue dip is temporary.

“They've always been pretty good about figuring out how to monetize these capabilities,” he said.

Google still has a revenue stream from old fashioned searching, Davenport said, even if it’s not growing like it used to.

“Google is in a much better position than Anthropic or OpenAI are in terms of having this huge source of … revenue from search this quarter,” he said.

Revenue of $63 billion, in fact. Davenport said that’s $63 billion that Anthropic and OpenAI don’t have to, say, weather any overspending on data centers.