Alphabet (GOOGL) shares suffered their worst post-earnings selloff on record, as investors grew increasingly concerned about the cost of the artificial intelligence boom. The Google parent plunged 12% on Thursday, Oct. 29, and sank another 2% on Oct. 30, after reporting disappointing third-quarter results. The selloff has prompted Wall Street analysts to reconsider their outlook for the stock. TheStreet Pro’s portfolio manager Chris Versace has lowered his price target on Alphabet to $380 from $410 following the earnings report. “We are seeing a wave of price target cuts for Alphabet (GOOGL) shares following the company’s third-quarter results last night. We too will join that group. We’re trimming our price target for the “Two” rated stock to $380 from $410,” Versace wrote in a note published on TheStreet Pro on Oct. 29. The fund manager said Alphabet’s growing cloud business and its ability to monetize AI could eventually outweigh concerns about near-term spending. Investors have been questioning whether the billions of dollars being poured into AI infrastructure will generate sufficient returns. Microsoft (MSFT), which also reported earnings, spent $45.2 billion on capital expenditures and finance leases during the quarter, up 30% from a year earlier. Its free cash flow fell 27% to $18.63 billion but remained positive. Alphabet, by contrast, reported negative free cash flow of $9.07 billion, substantially worse than the $2.70 billion deficit analysts expected. The company maintained its full-year capital expenditure forecast of $195 billion to $205 billion, but warned that spending would increase significantly in 2027. Why the veteran fund manager remains bullish on Alphabet Overall, Alphabet missed third-quarter estimates on both revenue and earnings, reporting $127.57 billion in sales versus the $128.2 billion expected. Earnings per share came in at $2.12, well below the $3.02 consensus. Despite the disappointing results, Versace sees several reasons to remain optimistic about Google’s longer-term prospects. One is Google Cloud, which has become an increasingly important contributor to Alphabet’s revenue and profitability. Also read: Meta stock falls despite Wall Street analysts raising price targets “Our interest will be in when the time is right to add more GOOGL shares to the Portfolio,” he wrote. “The reasons include Google’s growing position in cloud and the growing influence of that segment for the company’s overall revenue and profit stream as its profit picture brightens.” Google Cloud business reported 103% year-over-year revenue growth in the third quarter, while its operating income tripled. Google Cloud’s backlog has surpassed $560 billion, with the company expecting to recognize approximately $310 billion, or 55%, over the next 24 months. That backlog represents more than 50 quarters of Google Cloud’s third-quarter revenue, according to Versace. Demand continues to exceed available capacity, forcing Google to use third-party computing resources toward the end of September. That could weigh on cloud margins until additional infrastructure comes online. Still, the company’s AI adoption figures suggest demand remains strong. Google’s first-party model APIs now process nearly 32 billion tokens per minute, up 40% from the previous quarter and more than four times the level a year earlier. Its Gemini app has reached 1 billion users, while nearly 90% of Fortune 100 companies use Gemini Enterprise. Versace also pointed to Google’s growing tensor processing unit business, which contributed meaningfully to cloud growth. Nearly 100 customers now use Google’s TPUs, with demand described by management as “strong and accelerating.” Customers include Apple (AAPL), Anthropic, Citadel Securities and Jump Trading. Google’s TPU systems are also being deployed in customers’ own data centers and through providers including Oracle (ORCL). Anthropic alone plans to spend $125 billion to $150 billion on TPUs from Google and other suppliers for delivery between 2028 and 2031, according to figures Versace cited from its regulatory filing. Alphabet stock now trades at roughly $276 per share, down 12% year-to-date. CAMILLE COHEN / Getty Images Fund manager says AI threat to Google Search is exaggerated Versace also believes that fears that AI chatbots will destroy Google’s search advertising business may be exaggerated. Alphabet’s search advertising revenue rose 12% to $63.35 billion in the September quarter, although it missed analysts’ expectations. Google Chief Business Officer Philipp Schindler acknowledged that lower monetization in AI Mode partly affected the business. The company is expanding advertising in AI Overviews and AI Mode, including internationally. Also read: Intel stock plunges 20% as chipmaker warns of tough year ahead Versace argued that Google’s established advertising infrastructure gives it an advantage over emerging AI competitors. “The notion that AI will eat into its search revenue is likely overdone as Google focuses on bringing multi-turn ads to the U.S. and expanding ads in international markets for Google AI Mode, much the way OpenAI is,” he wrote. “Between the two, we would argue Google is far better positioned for that than OpenAI.” Not everyone shares that confidence. “The problem for Google is it faces an innovator’s dilemma and doesn’t know whether to protect its core business or look to join the disruption. As such, Google has lost its edge with Gemini and is behind peers on agentic AI,” Ben Barringer, global head of technology research at Quilter Cheviot, said in a CNBC interview. Alphabet stock now trades at roughly $276 per share, down 12% year-to-date. Related: Cathie Wood buys $9.1 million of tumbling tech stock
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