Shares of online advertising giant Alphabet (NASDAQ:GOOGL) fell 3.1% in the afternoon session after geopolitical tensions in the Middle East fueled a spike in energy prices, raising concerns about the operating costs for its energy-intensive AI and data center operations.
The escalating conflict between the U.S. and Iran pushed Brent Crude oil prices toward $100 per barrel, leading to a broad-based market sell-off. For a company like Alphabet, higher energy costs directly impacted the expenses associated with running its vast network of data centers. Adding to the pressure, the company faced regulatory headwinds in Europe, where 18 industry groups urged the European Commission to act on the company’s alleged non-compliance with the Digital Markets Act (DMA).
Adding to the weakness, competitor Anthropic announced that its Claude AI assistant can now control computers to complete tasks by imitating human keystrokes and mouse movements.
Investors reacted to the possibility that enterprise value would migrate from the application layer to the intelligence layer, leaving legacy software providers vulnerable to displacement by autonomous agents that can operate across platforms. Analysts added that the “agentic era” could lead to massive margin compression as software companies lose their pricing power.
The shares closed the day at $290.56, down 3.7% from previous close.
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Alphabet’s shares are not very volatile and have only had 4 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 7 months ago when the stock gained 8.3% on the news that a U.S. judge’s ruling in a major antitrust case eased fears of a forced break-up of the company.
The decision allows Google to retain control of its key businesses, including the Chrome browser and Android mobile operating system, which the U.S. Department of Justice had sought to divest. Investors welcomed the news, seeing it as a “massive win” that helps the tech giant avoid the worst-case scenario. While the company was spared a structural break-up, the judge did bar Google from entering into certain exclusive search agreements in the future and will require modest data sharing with competitors. The ruling removes a significant regulatory overhang for the company. Following the news, analysts at Needham reiterated a ‘Buy’ rating and raised their price target from $220 to $260, signaling renewed confidence.