Alphabet Shares Plunge as AI Costs Mount
Alphabet’s shares fell almost 13% on Thursday, their worst one-day drop since the company listed in 2004, after quarterly results showed weaker-than-expected search advertising growth and a second straight quarter of negative free cash flow as AI spending surged.
The BBC puts the loss at just over $500bn, taking market value from $3.97tn to $3.46tn. Yahoo Finance’s calculation is $482bn, the second-biggest one-day loss for a US-listed company.
Total revenue rose 25% to $127.6bn, slightly below analysts’ estimate of $128.2bn. Google Cloud revenue rose 103% to almost $31bn, while search revenue grew 12% to about $63bn, short of the roughly $65bn Wall Street expected. Profit fell 25%, and the results included a loss of $8.66bn on equity holdings. Free cash flow was negative by more than $9bn, almost double the previous quarter’s loss, against analysts’ expectation of a positive $2.7bn.
Capital expenditure hit a record $51.4bn, up from $24bn a year earlier. Google’s search engine now defaults to AI summaries, which affected the number of ads it sold. Chief business officer Philipp Schindler said the impact came partly from lower monetisation in its AI Mode and that Alphabet is “scaling” ads within AI Overviews and AI Mode, including internationally. He said on Wednesday he felt “very good about our trajectory.” Tracy Woo, a principal analyst at Forrester, said the quarter showed “the challenge of funding massive AI investments while maintaining the strength of established businesses.”
Amazon also reported on Thursday, and its shares fell about 5% to 6% in after-hours trading. The BBC reports sales growth of 11% to $201bn. Amazon Web Services grew 39%, its fastest in nearly five years, while the company’s free cash flow over the past 12 months fell to a record outflow of more than $42bn.
Chief executive Andy Jassy said the company has the chance to build two businesses that could each bring in $1tn, without naming them, and repeatedly pointed to its own chips and its Bedrock AI platform. “There is not one tool to rule the world,” he told analysts, and admitted spreading the spending over 25 years “would be more convenient.”
Microsoft’s shares were little changed on Thursday, falling by less than 1%. Revenue rose 19% to $92.3bn and cloud revenue grew 30% to about $63bn. Capital spending and finance leases rose 30% to $45.2bn, below the $50.67bn analysts expected, and free cash flow fell 27% to $18.63bn but stayed positive.
Chief executive Satya Nadella said Copilot’s automated tasks had nearly doubled since July and daily users were up 500% from a year ago. Microsoft also offered voluntary buyouts to about 60,000 employees this week. Woo said Microsoft’s results show enterprise demand for AI remains strong but raise “a much bigger question” about where AI’s value will ultimately be captured.
