Alphabet Market Value Drops $500 Billion as Heavy AI Spending Rattles Investors
Alphabet shares plunged nearly 13% after reporting a 25% drop in quarterly profit and negative cash flow driven by surging investments in artificial intelligence.
At a glance
- Alphabet's market value plunged from $3.97 trillion to $3.46 trillion as quarterly profit fell 25% due to high AI costs.
- Amazon also reported negative cash flow of $42 billion amid huge capital spending on chips and its Bedrock AI platform.
- Microsoft stock fell less than 1% after posting 19% revenue growth and trimming its AI-dedicated spending by roughly $5 billion.
Alphabet lost roughly $500 billion in market valuation on Thursday as Wall Street reacted negatively to mounting artificial intelligence costs, which caused profits to tumble and pushed free cash flow into negative territory.
The Google parent company saw its stock price slide by nearly 13% to end the day with a market capitalization of $3.46 trillion, down from $3.97 trillion on Wednesday. While quarterly revenue expanded by 25% year-on-year to $127.6 billion—bolstered by a 103% surge in Google Cloud sales to nearly $31 billion—overall profits dropped by 25%. Free cash flow reached negative $9 billion, nearly doubling the cash burn reported three months earlier, as Alphabet redirected capital toward AI infrastructure and development.
Advertising revenue also faced headwinds. Google's core search engine now presents AI-generated summaries by default, which constrained the volume of ads sold during the period. Despite the downturn, Google Chief Business Officer Phillip Schindler maintained confidence in the AI-centered search trajectory. Tracy Woo, a principal analyst at Forrester, observed that the results show the difficulty of financing massive AI initiatives while trying to protect core revenue streams.
Amazon and Microsoft Face Investor Scrutiny
Alphabet was not the only technology giant facing questions regarding capital expenditure. Amazon shares dropped 6% in after-hours trading after the retailer posted a negative cash flow of $42 billion, marking a six-fold increase in spending over three months. Although sales rose 11% to $201 billion, Chief Executive Andy Jassy defended the aggressive investments, pointing to potential $1 trillion opportunities in proprietary chip manufacturing and the Bedrock AI developer platform.
In contrast, Microsoft experienced a smaller market reaction, with shares slipping less than 1%. The company trimmed its AI-dedicated spending by roughly $5 billion and previously announced plans to eliminate thousands of jobs to control costs. Microsoft reported a 19% increase in quarterly revenue to $92.3 billion, led by a 30% rise in cloud revenue. Chief Executive Satya Nadella noted that daily active users for the Copilot AI assistant grew 500% year-on-year, with automated tasks nearly doubling since July.
Source: BBC Business.
Questions and answers
- Why did Alphabet's stock drop so sharply?
- Alphabet's shares fell nearly 13% after the company reported a 25% drop in profits and negative free cash flow exceeding $9 billion, driven by massive investments in artificial intelligence and slower search advertising sales.
- How did Amazon and Microsoft perform amid the AI boom?
- Amazon saw sales rise 11% but reported negative cash flow of $42 billion due to high spending, while Microsoft saw revenue grow 19% after reducing AI investments by around $5 billion and cutting jobs.
