Google Loses More Than $500 Billion in Value in a Day as AI Spending Rattles Wall Street

Google's parent company Alphabet lost just over $500 billion (£374 billion) in value in a single day. On Thursday the company's last business update of the year rattled Wall Street investors, and Google's stock hit a six-month low.

Alphabet revealed that its artificial intelligence (AI) summaries in search were affecting advertising revenue. The sale of ads that appear alongside Google Search results is the vast majority of Alphabet's business.

By the end of Thursday, the company's total stock market value had fallen to $3.46 trillion from $3.97 trillion the day before. Its stock fell by almost 13% on Thursday, its second lowest showing this year.

At first glance, Alphabet's quarterly results were not at all bad. Total revenue grew 25% compared to last year, hitting $127.6 billion, buoyed by Google Cloud, where revenue grew by 103% to almost $31 billion.

However, profits at the company fell by 25% during the quarter. And for only the second time in its history as a public company, it showed negative free cash flow, this time in excess of $9 billion — almost twice the cash loss it showed just three months ago.

Cash flow represents the money a company retains after paying for operations and investments, meaning Alphabet is now spending more money than it is bringing in. That new level of spending is almost entirely dedicated to Google's AI investments.

Google chief executive Sundar Pichai has backed the company's massive spending on AI. Phillip Schindler, Google's chief business officer, said on Wednesday that he felt very good about the company's trajectory with an AI-focused version of the search engine.

Tracy Woo, a principal analyst at Forrester, said Alphabet's disappointing search business results highlight the challenge of funding massive AI investments while maintaining the strength of established businesses.

Microsoft and Amazon also updated investors this week, and joined Google in plans to keep spending astronomical sums of cash in an ongoing AI race. But investors appeared dismayed at the impacts these plans are having on each company's ability to keep growing its core lines of business.

Amazon's stock also took a hit on Thursday after it shared results that disappointed investors; shares fell 6% in after-hours trading. Alongside quarterly sales growth of 11%, hitting $201 billion, the company shared a staggering cash flow figure of negative $42 billion — it is spending more than it makes, and that spending has increased six-fold over three months.

Chief executive Andy Jassy claimed the business was spending in part because it had the chance at not one, but two businesses that could each end up bringing in $1 trillion for Amazon in the future. He said there has never been a trillion-dollar revenue business, and Amazon may have two of them in the next 5 to 10 years — though he did not specify which two businesses those may be.

Wall Street reacted less enthusiastically to Microsoft's update, with shares falling by less than 1% on Thursday. The company spent around $5 billion less on investments dedicated to AI and revealed earlier this week plans to cut thousands of workers, which will further reduce its costs.

Microsoft's revenue grew 19% from a year earlier, hitting $92.3 billion for the quarter, while its crucial cloud business grew by 30% to $63 billion. Chief executive Satya Nadella said the use of Copilot, Microsoft's AI chatbot and tool, has seen automated tasks nearly double since July, as daily users grew by 500% from a year ago.

Woo said Microsoft's results reinforce that enterprise demand for AI remains strong, but they also highlight a much bigger question facing the technology industry: where AI value will ultimately be captured.