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Google parent company Alphabet lost just over $500bn in value on Thursday after its final business operations update of the year rattled Wall Street. The tech giant saw its stock hit a six-month low as it revealed that artificial intelligence summaries on its search engine were negatively affecting advertising revenue.
Google AI Impacts Core Search Business
Alphabet reported total revenue growth of 25% compared to the previous year, reaching $127.6bn, supported by a 103% surge in Google Cloud revenue to nearly $31bn. However, company profits dropped by 25% during the quarter, and Alphabet posted negative free cash flow exceeding $9bn, which is nearly double the cash loss recorded three months prior. This indicates the company is spending more money than it brings in, driven almost entirely by artificial intelligence investments. By the close of Thursday, Alphabet’s market value fell from $3.97 trillion to $3.46 trillion.
The drop followed the implementation of default AI summaries for search queries, which reduced the volume of advertisements the company could sell. Advertising alongside search results constitutes the vast majority of Alphabet’s business. Tracy Woo, a principal analyst at Forrester, told BBC News that Alphabet’s disappointing search results highlight the challenge of funding massive artificial intelligence investments while protecting established business strength. Despite Google chief business officer Phillip Schindler expressing confidence in the trajectory of the AI-focused search engine, company stock fell by nearly 13% on Thursday.
Amazon Spending Surges Amid Trillion-Dollar Hopes
Amazon shares also declined by 6% in after-hours trading following a quarterly sales growth of 11% to $201bn and a negative cash flow figure of $42bn. Chief executive Andy Jassy defended the spending, stating the company had the opportunity to build two separate businesses that could each generate $1 trillion for Amazon in the future. Although Jassy did not name the specific ventures, he repeatedly highlighted financial opportunities in manufacturing proprietary computer chips and the Bedrock AI developer platform. Jassy acknowledged during a call with financial analysts that the spending pace is rapid, but stated that Amazon can fund the plan to permanently alter its size, revenue, and free cash flow.
Microsoft Faces Questions Over AI Value
Microsoft experienced a milder market reaction, with shares falling by less than 1% on Thursday after spending approximately $5bn less on artificial intelligence investments and announcing plans to cut thousands of jobs to lower costs. The company reported a 19% revenue increase to $92.3bn, while its cloud business expanded by 30% to $63bn. Chief executive Satya Nadella reported that daily users of the Copilot AI tool grew by 500% year-on-year, with automated tasks nearly doubling since July. Woo noted to BBC News that while Microsoft’s results show strong enterprise demand, they also raise broader questions across the technology industry regarding where artificial intelligence value will ultimately be captured.
Amazon, Microsoft, and Google all reaffirmed their commitments to maintaining astronomical cash spending in the ongoing artificial intelligence race, despite investor concerns over the impact on core business growth.
