Alphabet, Google’s parent company, lost more than $500 billion in market value on Thursday as investors reacted to rising artificial intelligence (AI) costs, declining cash flow and concerns that the technology could undermine its traditional search advertising business.
The company’s shares fell nearly 13 per cent, hitting a six-month low and reducing its market capitalisation from $3.97 trillion to approximately $3.46 trillion.
The sell-off came after Alphabet released its latest quarterly results, which showed that although revenue continued to grow, the financial burden of its aggressive AI investments was becoming increasingly evident.
Alphabet reported a 25 per cent increase in revenue to $127.6 billion, supported by strong performance from Google Cloud, whose revenue more than doubled, rising 103 per cent to nearly $31 billion.
However, the company recorded a 25 per cent decline in profit during the quarter. It also reported negative free cash flow exceeding $9 billion, marking only the second time in its history as a publicly traded company that it had recorded such an outcome.
The figures highlight the growing financial demands of competing in the global AI market, where technology companies are committing enormous resources to infrastructure, computing capacity and AI development.
Beyond rising expenditure, investors are increasingly concerned that Google’s AI strategy could disrupt the search business that has historically generated the bulk of its revenue.
Google has increasingly integrated AI-generated summaries into search results, providing users with direct answers rather than requiring them to click through multiple websites.
While the development is intended to improve the search experience, it could reduce the number of advertisements displayed alongside conventional search results, potentially affecting one of Alphabet’s most important revenue streams.
Tracy Woo, principal analyst at Forrester, said the company’s search performance highlights the difficulty of financing massive AI investments while protecting the strength of established businesses.
Despite the concerns, Google’s Chief Business Officer, Philipp Schindler, expressed confidence in the company’s AI-focused search strategy, saying he felt “very good about our trajectory”.
However, investors appeared unconvinced, with the sharp decline in Alphabet’s shares reflecting concerns about the long-term financial implications of the transition.
Amazon also faced investor concerns after releasing its quarterly results, with its shares falling 6 per cent in after-hours trading.
The e-commerce and cloud computing giant reported an 11 per cent increase in revenue to $201 billion but recorded negative free cash flow of $42 billion.
The figure underscores the scale of its investment commitments as it expands its AI infrastructure and develops new technology businesses.
Chief Executive Officer Andy Jassy defended the spending, arguing that Amazon was pursuing opportunities that could eventually create businesses worth as much as $1 trillion each.
Although he did not identify the two businesses explicitly, Jassy repeatedly highlighted the potential of Amazon’s semiconductor operations and Bedrock, its AI development platform, which gives customers access to several leading AI models and tools.
He argued that the technology industry would not be dominated by a single AI model or platform, suggesting that multiple players and technologies would continue to coexist.
Jassy acknowledged that the investment spending would be more comfortable if spread over 25 years but maintained that the company could finance its plans.
He said the investments could fundamentally transform Amazon’s revenue, scale and future cash flow.
