Alphabet, the parent company of Google, has suffered a sharp decline in its share price after its latest financial results raised concerns about advertising growth and the cost of artificial intelligence development.

Investors reacted negatively to weaker-than-expected performance in Google’s core search business despite strong growth in cloud computing.

Alphabet’s revenue from Google Search grew by 12%, below analysts’ expectations.

The business remains a major source of income for the company, making any slowdown particularly important to investors evaluating its overall financial performance.

Google Cloud delivered a stronger result, with revenue more than doubling to $30.71 billion.

The growth reflects rising demand for cloud infrastructure and AI-related services, areas in which Alphabet is competing with Microsoft and other technology companies.

However, the company is spending heavily to build AI infrastructure. Capital expenditure reached 121.4% of operating cash flow in the September quarter, highlighting concerns that its investment programme could put pressure on cash generation as spending is expected to increase further.

Alphabet’s results illustrate the challenge facing technology companies investing heavily in AI: strong demand for new services must eventually translate into sustainable profits.

Investors will be watching whether improvements in cloud revenue and AI products can offset slower growth in search advertising and the rising cost of infrastructure.

Sources: Reuters