Alphabet Is Having Its Worst Earnings Day Ever. Here’s What It Means for Your ETFs
Alphabet just posted its worst post-earnings drop on record, and if you own XLC or QQQ, you absorbed the hit without buying a single Google share. The reason comes down to a concentration risk buried in your fund that most…
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Alphabet (NASDAQ:GOOGL | GOOGL Price Prediction) shares are down about 13% this morning, trading near $283, after third-quarter results disappointed. CNBC reported the stock was on course for its biggest post-earnings drop on record. If you own the Communication Services Select Sector SPDR Fund (NYSEARCA:XLC) or Invesco QQQ (NASDAQ:QQQ), you took part of that hit even if you never bought a Google share. XLC gets hit hardest, and the reason is a concentration risk most fund holders never check.
What Spooked Wall Street About Alphabet’s Quarter
Alphabet earned $2.12 per share, missing the $2.97 consensus and ending a 12-quarter streak of beats. Revenue of $127.58 billion came in just under the $127.83 billion estimate. Coverage from Reuters, the WSJ, the Financial Times and Fortune focused on slowing search growth, the revenue miss and heavy AI spending deepening cash burn.
Capital spending jumped 114% to $51.36 billion, and free cash flow turned negative at $9.07 billion. To pay for it, Alphabet issued $28.7 billion in notes and sold new shares into the market, which reduces every existing holder’s piece of the company.
Investors looked past Google Cloud, where revenue grew 103%. Part of the miss also came from an $8.70 billion loss on equity investments, which cut EPS by $0.55. Operating income still rose 30%.
How Much Alphabet Sits Inside Your Fund
Alphabet has two share classes: voting Class A (GOOGL) and nonvoting Class C. Most index funds hold both, which means the single line on your statement understates your real exposure.
In XLC’s June 30 filing, Class A was 10% of net assets and Class C was 13%. Each position on its own outweighs every XLC holding except Meta Platforms at 20%. The next largest, Take-Two, accounts for just 5%.
QQQ held about 3% in each class. The Vanguard Growth ETF (NYSEARCA:VUG) listed Alphabet at 10%, its third-largest holding behind NVIDIA and Apple. These are midyear snapshots. Alphabet has fallen 17% over the past month, so its current weights are lower.
Why XLC Holders Feel This Most
These funds weight by market cap: the bigger a company’s market value, the more of your dollar it gets. A sharp Alphabet drop flows straight into the fund’s net asset value in the same session, scaled by its weight. With your money spread across two large Alphabet positions, XLC takes a bigger hit than any diversified fund would.
Meta makes it worse. XLC’s three largest positions belong to two companies that both sell digital ads. A scare about AI spending or ad growth hits both at once. The fund looks like it holds a broad set of media and telecom names, but trades mostly on two stocks.
Index caps have limits. QQQ’s index limits any single issuer to 24% at its quarterly rebalancing in March, June, September and December. Caps only reduce a position after it grows too big. They can’t protect you from a one-day drop between rebalances.
Signals Worth Checking Before Next Quarter
- Top-three weight. State Street posts XLC’s full holdings daily on its website. If the three largest positions together near half the fund, you effectively own a two-stock portfolio. Check it every quarter.
- Overlap. Owning XLC, QQQ and VUG together means you hold Alphabet three times over. A free fund-overlap tool will show how much of your money lands on the same few megacaps. Run one each year.
- Alphabet’s fourth-quarter free cash flow. Another negative quarter while capital spending keeps rising would back up the cash-burn worry. A swing back to positive would ease it.
- Share sales. Alphabet still has $27.6 billion left in its share-sale program. Its quarterly filings show how much has been sold, and regular selling means more dilution for fund holders.
A Lower-Concentration Option
The Invesco S&P 500 Equal Weight ETF (NYSEARCA:RSP) resets every company to the same weight each quarter, so a single megacap miss just registers. The tradeoff: it charges a higher fee and trails when a few giants lead the market.
What This Means If You’re Near Retirement
If your core holding is a broad S&P 500 fund, the effect is more subtle. Alphabet is one large position among about 500. If a sector fund like XLC makes up a big share of your retirement money, concentration is the risk to deal with now. Two advertising companies drive most of its returns. Alphabet’s next cash-flow report will show whether today’s drop was a one-quarter shock or the start of a longer pressure.
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Jake has been been working in financial media for almost 15 years. He focuses on all things personal finance for 24/7 Wall St. with high hopes to educate and entertain. Most recently, Jake spent 12 years working various roles at The Motley Fool. He started copy editing fool.com content, worked on premium and marketing campaigns, and helped launch The Ascent, a personal finance brand.
His work has been featured on platforms like MSN, Yahoo Finance, USA Today, and more. He's written about credit cards, social security, ETFs, savings accounts, and just about anything else you can imagine when thinking about money. Jake love to cook, play golf, and tell people he's never had a cavity. (It's true!)
