The collapse and the causes cited by the company
Alphabet, Google's parent company, lost just over $500 billion in market value on Thursday, the day of its latest quarterly report of the year. The stock fell almost 13%, to a six-month low, and market capitalization went from $3.970 trillion to $3.460 trillion. According to the BBC's reconstruction, what alarmed investors most was the indication that AI-generated summaries in search results are weighing on advertising revenue: selling ads alongside Search results remains the largest part of Alphabet's business.
The quarterly report was not negative to begin with. Total revenue grew 25% to $127.6 billion, supported by Google Cloud, up 103% to almost $31 billion. But profits fell 25% and, for the second time in the listed company's history, free cash flow was negative, at more than $9 billion: nearly double the loss recorded three months earlier. The company attributes this level of spending almost entirely to AI investments.
What the executives said and how analysts judged it
CEO Sundar Pichai defended the massive spending on artificial intelligence. Chief business officer Phillip Schindler said on Wednesday that he felt very confident about the trajectory of the AI-oriented version of the search engine. Tracy Woo, principal analyst at Forrester, read the disappointing search results as a demonstration of the difficulty of funding huge AI investments while keeping the core business solid.
In the same week, Microsoft and Amazon also updated investors, both engaged in an AI race with very high spending. For the BBC, the common thread is the fear that these plans will reduce each company's ability to grow its core businesses.
Amazon and Microsoft: two different reactions
Amazon closed trading after its quarterly report with a 6% decline. Quarterly sales grew 11% to $201 billion, but free cash flow was negative at $42 billion, a figure that reflects spending increased sixfold in three months. CEO Andy Jassy argued that the company can finance the plan and that it will durably change size, revenue and free cash flow. He cited two possible trillion-dollar businesses, without naming them, repeatedly mentioning the production and sale of its own chips and the Bedrock developer platform.
Microsoft received a milder reaction, with the stock down less than 1%. It spent about $5 billion less on AI-dedicated investments and announced cuts to thousands of jobs. Revenue grew 19% to $92.3 billion and cloud 30% to $63 billion. CEO Satya Nadella said tasks automated via Copilot have nearly doubled since July and that daily users grew 500% in a year. Woo notes that Wall Street is looking further ahead, to where the value of AI will be captured.
