Fear of AI takes down $500 billion from Alphabet and exposes Google's search dilemma
Action reaches lowest level in six months, cash becomes negative and the sale of ads in search is put to the test by AI
BY THE X-TRADER NEWS NEWSROOM · REPORTING FROM BBC BUSINESS · 2 MIN
Alphabet, which owns Google, lost just over $500 billion in market value on Thursday, according to BBC Business. The company's value fell from $3.97 trillion on Wednesday to $3.46 trillion on Thursday, and the stock fell nearly 13% on the day to its lowest level in six months.
The report attributes the move to fears that artificial intelligence search summaries will affect ad sales. AI is already the standard in Google search, and selling ads in search results accounts for the majority of Alphabet's business. In other words, the change in format affects precisely the company's main source of revenue.
The quarter's numbers paint a mixed picture. Total revenue totaled US$127.6 billion, up 25% year-on-year, and Google Cloud revenue grew 103%, to almost US$31 billion. Alphabet's profit fell 25% in the period.
The point that most worried the market was cash. Free cash flow was negative by more than US$9 billion, the second time in the company's history as a publicly traded company, according to BBC Business. The loss was almost double that recorded three months earlier.
Tracy Woo, principal analyst at Forrester, assesses that Alphabet faces the challenge of financing artificial intelligence without abandoning its already established businesses. On the company side, Phillip Schindler, Google's chief business officer, said on Wednesday that he was optimistic about the AI version of search.
The movement was not restricted to Alphabet. At Amazon, quarterly revenue reached US$201 billion, an increase of 11%, but cash flow was negative at US$42 billion, and expenses rose six times in three months. Shares fell 6% in after-hours trading. Andy Jassy, the company's CEO, said the company could have two $1 trillion deals in five to ten years, without specifying which they would be.
What changes for the investor
The episode indicates that the market has started to demand a concrete return on investments in AI, especially when they put pressure on cash. As the sale of search ads sustains the majority of Alphabet's revenue, any sign of loss of space in this business tends to weigh disproportionately on the company's value. At the same time, the accelerated growth of the cloud shows that some spending already generates revenue. For the investor, the central question is whether the billion-dollar expenses of Alphabet and Amazon are converted into future profits and cash, something that the published data does not yet allow us to measure. This analysis does not recommend buying or selling shares or forecasting quotations.
Automatically translated from Portuguese.
