Google ETF Plunges After Earnings; SPY Shrugs it Off
The broad stock market absorbed a big hit to shares of Alphabet, while a leveraged ETF tied to the stock tumbled.
The stock market brushed off a big decline in shares of Alphabet Inc. (GOOG) Wednesday, while a leveraged ETF tied to the stock tumbled.
Shares of Alphabet, parent of Google, dropped as much as 8.9% on Wednesday after reporting earnings results for the fourth quarter that missed analyst estimates.
The Direxion Daily GOOGL Bull 2x Shares (GGLL) dropped 17.7% at its lows. Both Alphabet stock and the GGLL fund hit all-time highs Tuesday.
First Miss in Over a Year
Revenue for the fourth quarter came in at $81.6 billion, trailing the consensus estimate of $82.8 billion. It was the company’s first earnings miss since the third quarter of 2023 and its largest miss since the third quarter of 2022.
Some analysts were disappointed that growth in Alphabet’s cloud unit decelerated from the previous quarter. Revenue for Google Cloud grew by 30% year over year in Q4, down from a 35% growth rate in the third quarter.
The company blamed the slowdown on supply constraints.
“We do see and have been seeing very strong demand for our AI products in the fourth quarter of 2024. And we exited the year with more demand than we had available capacity. So, we are in a tight supply-demand situation, working very hard to bring more capacity online,” said Anat Ashkenazi, the company’s CFO.
To that end, Alphabet announced that it would spend $75 billion in capital expenditures in 2025, significantly higher than the $58 billion that analysts were anticipating.
The higher spending levels will likely weigh on the company’s earnings and free cash flow, which, along with the miss in fourth-quarter revenues, explains some of the drop in the stock on Wednesday.
ETFs That Hold Alphabet
444 U.S.-listed ETFs currently hold shares of Alphabet, according to etf.com’s ETF Stock Holdings tool.
That includes the iShares Global Communication Services ETF (IXP), the Fidelity MSCI Communication Services Index ETF (FCOM), and the Vanguard Communication Services ETF (VOX), which allocate roughly 12% of their portfolios to the stock.
While popularly considered a tech company, Alphabet is categorized as a communication services stock under the Global Industry Classification Standard.
VOX was last trading down by 1.8%, weighed down by the decline in Alphabet shares.
However, broader stock ETFs, like the SPDR S&P 500 ETF Trust (SPY) and the Invesco QQQ Trust (QQQ), which hold 4.3% and 6% of their portfolios, respectively, in the stock, were last trading fractionally higher after opening the session in the red.
