Google parent Alphabet lost more than $500 billion in market value on Thursday, October 29, as investors reacted to concerns over artificial intelligence spending, declining profits and the impact of AI-powered search features on advertising revenue.
The company's shares fell nearly 13%, reaching a six-month low despite reporting strong quarterly revenue growth. Alphabet's market capitalisation declined from approximately $3.97 trillion to $3.46 trillion in a single trading session.
The decline followed Alphabet's latest quarterly earnings announcement, which highlighted the financial implications of expanding AI infrastructure while maintaining growth in its established businesses.
Alphabet reported revenue of $127.6 billion for the quarter, representing a 25% increase from the corresponding period last year. Google Cloud recorded particularly strong growth, with revenue increasing 103% to nearly $31 billion.
However, the company's quarterly profit declined by approximately 25%, while free cash flow turned negative by more than $9 billion. The negative cash flow reflected substantial investment in AI infrastructure and related operations.
The results also raised questions about the relationship between Google's expanding AI search capabilities and its advertising business.
Google has increasingly integrated AI-generated summaries into its search engine, allowing users to receive answers directly within search results. While these features change how information is presented, they also affect the traditional advertising model built around search queries and sponsored placements.
According to the BBC, Alphabet disclosed that AI-generated search summaries were affecting advertising revenue, contributing to investor concerns about the company's ability to maintain growth in its core business.
Search advertising remains a major source of revenue for Alphabet, making changes in user behaviour and advertising opportunities particularly significant for its financial performance.
Tracy Woo, Principal Analyst at Forrester, said the company's search performance highlighted the challenge of financing substantial AI investments while protecting established revenue streams.
Google Chief Business Officer Philipp Schindler expressed confidence in the company's AI-focused search strategy during its earnings discussions, indicating that management remained positive about the direction of the business.
The market reaction came during a week when other major technology companies, including Microsoft and Amazon, also provided updates on their AI investment plans.
The companies have committed substantial resources to data centres, computing infrastructure and AI services as competition intensifies across the technology sector.
For Alphabet, the latest results present two contrasting developments. Its cloud business continues to expand rapidly, while spending on AI and changes to search advertising are placing pressure on profitability and cash generation.
The share price decline reflects investor concerns about the near-term financial impact of these developments, even as Alphabet continues to report revenue growth.
The company's future earnings will provide further indications of how AI-powered search, advertising performance and infrastructure expenditure affect its overall financial position.
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