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Google's Ad Engine Sputters as AI Search Shift Bites

By Oliver Benns

Alphabet shed more than $300bn in market cap after advertising revenue in the third quarter fell short of expectations, exposing fears that AI chatbots are eroding Google's search franchise. Group revenue still grew 25% and cloud revenue doubled past $120bn, but the abrupt slowdown in search ads rattled investors who have waited three years for the ChatGPT threat to show up in the numbers. Capex climbed above $51bn in the quarter, pushing free cash flow to negative $9.1bn and signalling further trips to the capital markets ahead.

Microsoft Beats on Azure, Stays Cash-Flow Positive in AI Race

Microsoft revenue rose 19% year-over-year and Azure growth accelerated to 48% on a base above $120bn, sending shares up as much as 5% after hours. Unlike Amazon, Google and Meta, Microsoft remains free cash flow positive despite heavy AI spending, leaning on short-term capacity from neoclouds rather than funding the entire buildout itself. That removes the need to tap debt or equity markets at a moment when peers are issuing both.

Fed Holds Rates as Two Governors Break Ranks for a Hike

The Federal Reserve kept US interest rates steady, with Governor Lisa Cook and Cleveland Fed President Beth Hammock dissenting in favour of a quarter-point hike. The statement upgraded the economy from solid to strong, yet offered little explanation for standing pat with inflation still above target. Traders now price an 80% chance of a December hike, and one of next year's eight meetings will be reserved for long-term strategy with no rate decision.

Microsoft Offers Buyouts to 27% of Global Workforce

Microsoft is offering voluntary buyouts to roughly 27% of its global staff, following nearly 5,000 layoffs announced in July. If fully taken up, headcount would fall below pre-pandemic levels, even after the company added almost 60,000 employees in the two years after Covid. Quarterly capex above $50bn appears to be crowding out payrolls as AI spending scales.