NEW YORK (The Thursday Times) — Alphabet, the parent company of Google, lost just over $500 billion in stock market value on Thursday after investors balked at a fall in profits and signs that Google’s own AI summaries are eating into the search advertising that pays for almost everything else.
The shares fell by almost 13 per cent to a six-month low, cutting the company’s market value from $3.97 trillion to $3.46 trillion in a single session, according to the BBC.
On paper the quarter was strong. Revenue grew 25 per cent from a year earlier to $127.6 billion, and Google Cloud revenue more than doubled, up 103 per cent to almost $31 billion. But profits fell 25 per cent and Alphabet reported negative free cash flow of more than $9 billion, almost twice the shortfall of three months earlier, as it poured money into artificial intelligence.
AI summaries and the ad business
Google search now defaults to AI-generated summaries of a user’s query, and the company said that had reduced the number of ads it could sell during the quarter. Search advertising makes up the vast majority of Alphabet’s business.
Tracy Woo, a principal analyst at Forrester, said the weaker search results showed “the challenge of funding massive AI investments while maintaining the strength of established businesses.”
The sell-off spread to other big spenders on AI. Amazon shares fell 6 per cent in after-hours trading after it reported sales up 11 per cent to $201 billion but free cash flow of minus $42 billion. Microsoft, which spent about $5 billion less on AI investment and has announced thousands of job cuts, slipped by less than 1 per cent after revenue rose 19 per cent to $92.3 billion.
