Google value plunges by $500bn as AI fears rattle Wall Street
Alphabet’s AI Spending Raises New Questions for Investors
Constantvpn.com – Alphabet suffered a sharp market setback after investors focused on the financial pressure created by its expanding artificial intelligence programme. The parent company of Google lost slightly more than $500bn (£374bn) in market value on Thursday, with its shares falling close to 13% and reaching a six-month low.
The sell-off followed the company’s latest business update, which highlighted a difficult balance: investing heavily in AI while protecting the advertising engine that has long powered Google’s growth. By the end of the day, Alphabet’s market value had dropped from $3.97tn to $3.46tn.
Google chief executive Sundar Pichai has defended the scale of the company’s AI investment. But the latest figures showed why Wall Street is becoming more demanding about evidence that such spending can generate returns without weakening established businesses.
Search advertising faces pressure
Google Search is increasingly presenting AI-generated summaries as the standard response to user queries. While the feature changes how people receive information, it has also affected the number of advertisements Google was able to sell during the quarter.
Advertising shown beside search results remains the dominant source of Alphabet’s revenue. That makes any shift in search behaviour particularly important, even as the company tries to position AI as central to its future.
Alphabet’s headline revenue growth remained strong. Quarterly sales rose 25% from a year earlier to $127.6bn, helped significantly by Google Cloud. Revenue from that division more than doubled, increasing 103% to nearly $31bn.
Yet strong sales did not prevent a notable decline in profitability. Alphabet’s profit fell 25% during the quarter, while free cash flow turned negative by more than $9bn. It was only the second time in Alphabet’s history as a public company that it reported negative free cash flow, and the outflow was nearly double the level reported three months earlier.
Free cash flow measures the money left after a company covers operating expenses and investment. A negative result means Alphabet is currently directing more cash into its operations and expansion plans than it is generating. Much of that increase in spending is tied to its AI push.
“Highlights the challenge of funding massive AI investments while maintaining the strength of established businesses.”
Forrester principal analyst Tracy Woo used those words to describe the pressure visible in Alphabet’s search results. Google’s chief business officer, Phillip Schindler, struck a more optimistic tone when discussing the company’s AI-led search strategy.
“Very good about our trajectory.”
For investors, however, the immediate concern is whether AI summaries reduce opportunities for the advertising business before new AI products can make up the difference.
Amazon Investors Also Question the Cost of the AI Race
Amazon faced a similar reaction after publishing quarterly figures that left investors unsettled. Its shares declined 6% in after-hours trading despite an 11% increase in quarterly sales to $201bn.
The company reported negative cash flow of $42bn, a figure that showed both the scale of its investment and the speed of its increase. The cash outflow was six times larger than it had been three months earlier.
Chief executive Andy Jassy argued that Amazon is pursuing opportunities large enough to reshape the business over the long term. He suggested that two areas could eventually become trillion-dollar businesses for the company, without identifying them directly.
During discussions with analysts, Jassy repeatedly pointed to Amazon’s own computer-chip efforts and Bedrock, its AI developer platform. Bedrock gives paying customers access to major AI models and tools, placing Amazon Web Services in direct competition for businesses building or deploying generative AI systems.
“One of the lessons we’ve learned over 20-plus years is that there is not one tool to rule the world.”
“People always assume whatever is in the lead early on will be the only thing that people use - it’s never true.”
Jassy acknowledged that investors might prefer the spending to be spread across a far longer period.
“Would be more convenient” if it were spread over the next 25 years.
“That’s not the world we live in.”
“We can fund this plan, and I think it will forever change the size, the revenue, the free cash flow of Amazon.”
Microsoft Sees a Milder Market Response
Microsoft’s update received a less severe response, with shares slipping by under 1% on Thursday. The company, one of OpenAI’s biggest investors, spent roughly $5bn less on AI-related investment than its rivals during the period.
Microsoft also disclosed plans earlier in the week to cut thousands of jobs, a move that will reduce costs. Its quarterly revenue rose 19% year on year to $92.3bn, while its cloud division expanded 30% to $63bn.
Chief executive Satya Nadella said activity around Copilot, Microsoft’s AI assistant and workplace tool, was increasing rapidly. He said automated tasks had almost doubled since July as daily use grew.
The contrasting market reactions underline the core issue confronting major technology companies. Investors still see AI as a potentially transformative technology, but they are increasingly assessing whether the enormous upfront cost can be sustained while advertising, cloud computing and other existing businesses continue to grow.
For Alphabet, Amazon and Microsoft, the contest is no longer simply about releasing new AI products. It is also about persuading markets that today’s spending will lead to durable revenue and cash generation tomorrow.
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