Alphabet Loses $500bn in Value as AI Spending Rattles Wall Street
Summary
Google parent Alphabet lost just over $500bn (£374bn) in market value on Thursday after its latest results showed AI summaries are cutting into search advertising. Microsoft and Amazon also reported heavy AI spending this week, and investors questioned how long that growth can be sustained.
Key Highlights
- Alphabet’s market value fell from $3.97tn to $3.46tn, a drop of almost 13%.
- Revenue rose 25% to $127.6bn, but profit fell 25%.
- Alphabet reported negative free cash flow of $9bn.
- Amazon posted negative free cash flow of $42bn; its shares fell 6% after hours.
What Happened?
Alphabet’s quarterly numbers looked healthy at first. Google Cloud revenue grew 103% to almost $31bn. But profit dropped, and free cash flow turned negative for only the second time since the company went public, almost double the loss of three months earlier. Shares hit a six-month low. Google’s search engine now defaults to AI summaries, and the company said this reduced the ads it could sell. Ads shown beside search results make up most of Alphabet’s business.
Why is it Important?
Free cash flow is the money left after operations and investments, so a negative figure means Alphabet is spending more than it brings in, mostly on AI. Forrester analyst Tracy Woo said the results highlight the challenge of funding massive AI investment while keeping established businesses strong.
Impact and Implications
Amazon’s picture was similar. Sales rose 11% to $201bn, yet spending climbed six-fold in three months. CEO Andy Jassy said the company can fund the plan and pointed to its own chips and its Bedrock AI platform as opportunities, without naming the two potential trillion-dollar businesses he referred to. Microsoft fared better, with shares down by less than 1%. Revenue grew 19% to $92.3bn, and AI-related investment fell by about $5bn. CEO Satya Nadella said Copilot’s daily users grew 500% year on year. Woo said investors are now looking further ahead to see who will actually capture AI’s value.
What Happens Next?
All three companies plan to keep spending heavily. Investors will look at the next quarter to see whether revenue growth can offset the cash burn.