Alphabet Loses $50bn in Value Amid AI Spending Concerns

Google parent Alphabet suffered a major stock market setback on Thursday, losing more than $50 billion in market value amid concerns over its massive artificial intelligence (AI) investments and the potential impact of AI-powered search on advertising revenue.

Alphabet shares fell nearly 13 per cent on October 29, reaching their lowest level in six months after the company released its latest quarterly financial results.

Concerns about the effect of AI-generated summaries in Google Search on its advertising business contributed to the sell-off.

Alphabet’s quarterly revenue rose 25 per cent year-on-year to $127.6 billion. Revenue from Google Cloud more than doubled, increasing 103 per cent to around $31 billion.

However, the company’s profit fell 25 per cent, while free cash flow turned negative by more than $9 billion following investment and operating expenses.

Much of the spending has gone towards developing AI technologies and building the infrastructure needed to support them.

Alphabet’s market value fell from $3.97 trillion on Wednesday to around $3.46 trillion on Thursday.

Advertising on Google Search remains the company’s largest source of revenue. However, AI-generated answers displayed at the top of search results have raised concerns about whether they could reduce advertising opportunities.

Tracy Wu, principal analyst at research firm Forrester, said Google’s search performance highlighted the challenge of maintaining a strong traditional business while making substantial investments in AI.

Google Chief Business Officer Philipp Schindler, however, expressed optimism about the future of AI-powered search.

Amazon also faced investor concerns over heavy AI-related spending. Its shares fell 6 per cent in after-hours trading on Thursday following the release of its financial results.

The company’s quarterly revenue increased 11 per cent to $201 billion, but its free cash flow turned negative by $42 billion. Its additional cash spending increased sixfold in just three months.

Amazon CEO Andy Jassy said the company was investing in technologies with significant future revenue potential, particularly its own computer chips and Bedrock AI platform.

Microsoft performed relatively better, with its shares falling less than 1 per cent on Thursday.

Its quarterly revenue rose 19 per cent to $92.3 billion, while cloud revenue increased 30 per cent to $63 billion.

Chief Executive Satya Nadella said daily users of Microsoft’s AI tool Copilot had increased 500 per cent in a year. The number of tasks completed autonomously had also nearly doubled since July.

The latest financial results from Alphabet, Amazon and Microsoft have raised questions about whether growing AI investments will generate sufficient returns.

Analysts say the key challenge for technology companies is determining who will ultimately capture the economic benefits of AI and which businesses will profit most.

Despite the rapid expansion of AI technology, investors remain cautious about the scale of spending and the time required to deliver tangible financial returns.