Google value plunges by $500bn as AI fears rattle Wall Street

ByKali Hays Technology reporter.

Key points

• Google parent Alphabet lost just over $500bn (£374bn) in value on Thursday after it rattled Wall Street with its last update of the year on its business operations.
• Alongside quarterly sales expansion of 11%, hitting $201bn, the business shared a staggering cash flow figure of negative $42bn.
• 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 revenue grew 19% from a year earlier, hitting $92.3bn for the quarter.
• Total revenue grew 25% compared to last year, hitting $127.6bn.

After it made public its artificial intelligence (AI) summaries on search were affecting ad revenue, google spooked investors so badly that its stock hit a six-month low.

Microsoft and Amazon additionally updated investors this week, and joined Google in aims to keep spending astronomical sums of cash in an ongoing AI race.

But investors appeared dismayed at the impacts these intends are having on the ability of each to keep growing their core lines of business. Google AI is eating its core business – search.

At first glance, the quarterly results of Alphabet, the parent firm of Google, were not at all bad.

Total revenue grew 25% compared to last year, hitting $127.6bn. It was buoyed by the ongoing success of Google Cloud, where revenue grew by 103% to almost $31bn.

Nevertheless, profits at the business fell by a considerable 25% during the quarter. And for the second time in its history as a public firm, it demonstrated negative free cash flow, this time in excess of $9bn. That's almost twice the loss of cash Alphabet indicated just three months ago.

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

Google's omnipresent search engine now defaults to AI summaries of a person's query, and that hit the number of it was able to sell during the quarter.

Notably, the sale of ads that appear alongside Google Search results is the vast majority of Alphabet's business.

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

Although Phillip Schindler, Google's chief business officer, remarked on Wednesday that he felt "very good about our trajectory" with an AI-focused version of the search engine, the company's stock fell by almost 13% on Thursday, its second lowest showing this year. Investors not buying Amazon's trillion-dollar business hopes.

Amazon's stock additionally took a hit on Thursday after it shared results that disappointed investors. Shares of the firm fell 6% in after hours stock trading.

That number demonstrates that Amazon is not only spending more capital than it makes, but that spending has rose six-fold over the span of three months.

Chief executive Andy Jassy asserted the business was spending in part as it had the chance at, not one, but two businesses that could end up bringing in $1 trillion for Amazon the future.

Jassy did not specify what two Amazon businesses those may be. But during a call with financial analysts he repeatedly mentioned the financial opportunity presented by Amazon making and selling its own computer chips, as well as its AI developer platform Bedrock. It offers paying users access to most major AI models and tools.

"One of the lessons we've learned over 20-plus years is that there is not one tool to rule the world, " Jassy remarked. "People always assume whatever is in the lead early on will be the only thing that people use – it's never true."

As Jassy was asked a number of times to explain the company's spending, he admitted it "would be more convenient" if it were spread over the next 25 years. "That's not the world we live in, " he continued.

"We can fund this plan, and I think it will forever change the size, the revenue, the free cash flow of Amazon." Microsoft begs the question of AI's real value.

Wall Street reacted less enthusiastically to Microsoft's update, with shares falling by less than 1% on Thursday.

In practice, the firm, which is additionally one of OpenAI's largest investors, spent around $5bn less on investments dedicated to AI. It additionally disclosed earlier this week intends to cut thousands of workers. It will further reduce the company's costs.

Meanwhile, its revenue grew 19% from a year earlier, hitting $92.3bn for the quarter. Its crucial cloud business grew by 30% to $63bn.

Chief executive Satya Nadella remarked the apply 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.

Usually lower spending and growing sales earns a positive reaction from investors.

But Woo remarked Wall Street is trying to look farther into the future when it comes to which businesses will truly produce good on their major promises around AI.

"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, " Woo remarked.

Taken together, the developments around google value plunges by $500bn as AI fears rattle Wall Street point to a situation that is still moving, and the coming days should bring more clarity.