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

Google parent Alphabet lost just over $500bn (£374bn) in value on Thursday after a business update that rattled Wall Street, sending its stock to a six-month low. The company revealed that the artificial intelligence (AI) summaries now defaulting on its search engine were affecting advertising revenue, the vast majority of its business. By the end of Thursday, Alphabet's total stock market value had fallen to $3.46 trillion from $3.97 trillion the day before, with shares down almost 13%, their second lowest showing this year. At first glance, the quarterly results were not all bad. Total revenue grew 25% compared to last year, reaching $127.6bn, buoyed by the continued success of Google Cloud, where revenue grew by 103% to almost $31bn. However, profits fell by a considerable 25% during the quarter. For the second time in its history as a public company, Alphabet showed negative free cash flow, this time in excess of $9bn, almost twice the cash loss it reported just three months earlier. That new level of spending is almost entirely dedicated to Google's AI investments. Google chief business officer Phillip Schindler said on Wednesday that he felt "very good about our trajectory" with an AI-focused version of the search engine. But Tracy Woo, a principal analyst at Forrester, said Alphabet's disappointing search business results "highlights the challenge of funding massive AI investments while maintaining the strength of established businesses." Alphabet was not alone in alarming investors. Amazon's shares fell 6% in after-hours trading on Thursday after it reported quarterly sales growth of 11%, hitting $201bn, alongside a cash flow figure of negative $42bn, a six-fold increase in spending over three months. Chief executive Andy Jassy defended the outlay, telling analysts the company had the chance at not one but two businesses that could eventually bring in $1 trillion for Amazon. While he did not specify which, he repeatedly pointed to Amazon making and selling its own computer chips, as well as its AI developer platform Bedrock, which gives 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 said. "People always assume whatever is in the lead early on will be the only thing that people use - it's never true." Asked several times to explain the spending, he admitted it "would be more convenient" if it were spread over the next 25 years, adding: "That's not the world we live in. We can fund this plan, and I think it will forever change the size, the revenue, the free cash flow of Amazon." Microsoft's update drew a milder reaction, with shares falling by less than 1% on Thursday. The company, one of OpenAI's largest investors, spent around $5bn less on AI-dedicated investments and earlier this week announced plans to cut thousands of workers. Its revenue grew 19% from a year earlier to $92.3bn for the quarter, with its crucial cloud business growing by 30% to $63bn. Chief executive Satya Nadella said daily users of Copilot, Microsoft's AI chatbot and tool, had grown by 500% from a year ago, with "automated tasks nearly double since July." Woo noted that Microsoft's results reinforce strong enterprise demand for AI, but also highlight a much bigger question facing the technology industry: where AI value will ultimately be captured.