July 24 Reuters Alphabet fell more than 3 on Wednesday on fears that its rising investments in AI infrastructure would squeeze margins and YouTube was facing tough competition for ad dollars.

The Google parent39;s capital expenditure rose more than expected in the second quarter to 13.2 billion as it invests heavily in infrastructure needed to support generative AI services, as well as compete with Microsoft.

While Alphabet has been cutting costs through layoffs to protect profitability, several analysts said that seasonally higher hiring of fresh graduates and the earlierthanusual Pixel launch will weigh on its margins in the third quarter.

Its YouTube videostreaming service is also grappling with tough yearonyear comparisons and competition in the market for online ad videos from the likes of Amazon.com.

YouTube ad sales grew 13 in the second quarter, compared with an increase of nearly 21 in the first quarter.

Management sounded quite conservative about the outlook for the second half of the year, Bernstein analysts said.

Perhaps this is Google39;s way of setting an easy bar for the new CFO to come in against the next quarter. Or perhaps there39;s some truth to the conservatism and we are entering an uncomfortable period for the digital advertising names with decelerating growth and rising costs.

Shares of other digital adreliant firms such as Meta Platforms, Snap and Pinterest were down between 3.2 and 4 as growth slowed at Alphabet39;s core Search business…