Alphabet loses over $500bn in market value as AI spending pressures profits
Alphabet's shares fell nearly 13% after a quarterly report showed a 25% profit drop and negative free cash flow tied to heavy AI investment, wiping out more than $500bn in market value.
Alphabet, the parent company of Google, saw its market capitalisation shrink to $3.46 trillion on Thursday, down from $3.97 trillion the day before, after reporting a 25% decline in quarterly profit and a negative free cash flow of more than $9 billion. Revenue rose 25% year-on-year to $127.6 billion, driven by Google Cloud, whose revenue more than doubled to nearly $31 billion. However, the company’s cash outflows, largely devoted to artificial-intelligence projects, exceeded cash inflows for the first time in its history.
The AI-driven changes to Google’s search experience, which now defaults to AI-generated summaries, reduced the volume of advertisements sold during the quarter. Despite the shift, chief business officer Phillip Schindler said he felt “very good about our trajectory” with the AI-focused search version.
"We can fund this plan, and I think it will forever change the size, the revenue, the free cash flow of Amazon," said Amazon chief executive Andy Jassy, who also highlighted the company’s investments in custom chips and its Bedrock AI platform as long-term growth drivers.
Alphabet’s share price dropped almost 13%, marking its second-lowest level this year, while Amazon’s stock fell 6% in after-hours trading after it disclosed similar spending pressures. Both companies said the high level of investment is intended to secure a competitive edge in the rapidly evolving AI market.