Alphabet, Google's parent company, saw its market value shrink by more than $500 billion in a single day as investors reacted to the scale of its AI spending. Shares slipped roughly 13%, taking the company's valuation from about $3.97 trillion to $3.46 trillion by Thursday's close, the lowest price in six months, and the decline also pulled down Amazon and Microsoft stocks.
Chief business officer Philipp Schindler explained that Google's "AI mode," which provides conversational answers, is cannibalising revenue from ads that appear next to traditional search queries.
Nevertheless, Schindler said he felt "very good about our trajectory" with an AI-focused version of the search engine.
The downturn came after Alphabet reported its third-quarter results. Revenue rose 25% year over year to $127.6 billion. Google Cloud generated $30.7 billion and posted $11.1 billion in profit, both beating analyst expectations. Net profit, however, dropped 25% for the quarter, and free cash flow turned negative by $9.1 billion for the second consecutive quarter.
Investors highlighted two linked concerns. First, Alphabet now forecasts capital spending of up to $205 billion this year, more than double the prior year's amount. Second, Google Search is under pressure as AI-generated answers now top many results, diverting traffic from paid ads that drive the core business.
Analysts noted the key issue is whether the AI outlay will eventually produce sustainable revenue. The firm is said to lag behind Anthropic and OpenAI in AI coding tools despite launching Gemini 4. Equity investment losses of $8.7 billion added to the strain.
Amazon's shares fell about 6% after it reported $201 billion in quarterly sales and a negative $42 billion free cash flow. CEO Andy Jassy cited custom chips and the Bedrock AI developer platform as future growth drivers. Microsoft's stock slipped less than 1%; CEO Satya Nadella said daily users of Copilot have risen 500% year over year.
