Spotify Shares Plunge as AI Spending Clouds Strong Q1 Performance

Spotify (NYSE: SPOT) experienced a sharp sell-off on Tuesday, with shares dropping approximately 14% after the company issued a second-quarter operating income forecast that failed to meet Wall Street expectations. The decline extends a difficult period for shareholders, leaving the stock trading more than 40% below its 52-week high. The market reaction stands in contrast to a robust first quarter where the streaming giant exceeded its own internal guidance. Total revenue rose 8% year-over-year to €4.5 billion, while constant-currency sales grew 14%. Profitability reached new heights, with a record Q1 gross margin of 33% and operating income surging 40% to €715 million, beating management's guidance by €55 million. However, the catalyst for the sell-off was management's Q2 operating income guidance of €630 million, which fell well short of the €680 million anticipated by analysts. CFO Christian Luiga attributed the projected dip to a sharp ramp in spending on artificial intelligence initiatives and product marketing, noting that operating expenses are expected to remain elevated for the next several months. Underlying the guidance miss are signs of slowing momentum in core areas. Premium subscriber growth decelerated to 9% year-over-year, down from 12% seen in the first three quarters of 2025. Additionally, reported ad-supported revenue fell 5%, highlighting continued weakness in the company's advertising business. With a price-to-earnings ratio remaining around 29, investors are questioning if the current valuation is justified amid slowing growth.