Google Value Plunges by $500bn Amid AI Market Fears
Google parent Alphabet lost over $500bn in value on Thursday after updates on AI summaries impacting ad revenue rattled Wall Street investors.
Stock photo for illustration only, not from the actual event
- Alphabet market value dropped by over $500 billion on Thursday.
- AI summaries on Google search negatively impacted advertising revenue.
- Company profits fell 25% with negative free cash flow exceeding $9 billion.
- Amazon and Microsoft also revealed plans to maintain massive AI spending.
Wall Street was rattled on Thursday as Alphabet, the parent company of Google, lost just over $500 billion or approximately £374 billion in market value following its final business operations update of the year, which drove the company's stock to a six-month low and alarmed investors.
Investor anxiety surged after the tech giant revealed that the artificial intelligence summaries now appearing by default on its search engine were directly affecting the number of advertisements the business was able to sell, impacting the vast majority of Alphabet's core revenue stream.
At first glance, Alphabet's quarterly results appeared resilient, with total revenue growing 25% year-on-year to hit $127.6 billion, heavily buoyed by Google Cloud revenue surging 103% to nearly $31 billion. However, quarterly profits dropped by a considerable 25%, and for only the second time in its history as a public company, Alphabet posted a negative free cash flow exceeding $9 billion, nearly doubling the cash loss reported just three months prior.
Stock photo for illustration only, not from the actual event
Amazon also took a hit on Thursday, with shares falling 6% in after-hours trading after disappointing investors with a staggering negative cash flow figure of $42 billion, despite quarterly sales growing 11% to reach $201 billion. Chief Executive Andy Jassy defended the increased spending—which grew six-fold in three months—by claiming the investments target potential trillion-dollar future businesses, including the company's custom computer chips and its AI developer platform Bedrock.
"We can fund this plan, and I think it will forever change the size, the revenue, the free cash flow of Amazon."
Andy Jassy, Chief Executive of Amazon
The willingness of major tech conglomerates like Google, Amazon, and Microsoft to absorb short-term financial pain, declining free cash flow, and skeptical investor reactions highlights a high-stakes race to secure long-term market dominance in artificial intelligence infrastructure. Despite Wall Street's immediate concerns over core ad and retail revenues, these companies view heavy capital expenditure as an existential necessity to capture the next era of computing.
In contrast, Microsoft experienced a milder reaction from Wall Street, with shares falling less than 1% on Thursday. The company spent roughly $5bn less on AI investments compared to rivals and announced plans to cut thousands of workers to curb costs, while posting a 19% revenue increase to $92.3 billion alongside a 30% growth in its crucial cloud business to reach $63 billion.
Source: BBC Business
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