Alphabet, the parent company of Google, lost just over $500bn (£374bn) in value on Thursday after its quarterly update rattled Wall Street. The stock hit a six-month low.
Alphabet reported total revenue of $127.6bn, up 25% from a year earlier. Google Cloud revenue grew 103% to almost $31bn. Profits fell 25% during the quarter, and the company posted negative free cash flow of more than $9bn, according to the report. Free cash flow is the money a company keeps after paying for operations and investments. The report says that new spending is almost entirely dedicated to Google's AI investments.
The report says Google's search engine now defaults to AI summaries of a person's query, and that this reduced the number of ads the company could sell during the quarter. Ads on search results make up the vast majority of Alphabet's business. Tracy Woo, a principal analyst at Forrester, said the results "highlight the challenge of funding massive AI investments while maintaining the strength of established businesses."
Google's chief business officer, Phillip Schindler, said on Wednesday that he felt "very good about our trajectory" with an AI-focused version of search. Alphabet's stock fell almost 13% on Thursday.
The report also says Amazon shares fell 6% in after-hours trading after its results disappointed investors. Amazon reported sales growth of 11% to $201bn and negative cash flow of $42bn. Chief executive Andy Jassy said the spending could fund two businesses that might each bring in $1 trillion, but did not name them. He pointed to Amazon's own computer chips and its AI developer platform Bedrock.
Microsoft shares fell by less than 1% on Thursday. Its revenue rose 19% to $92.3bn, and its cloud business grew 30% to $63bn. Chief executive Satya Nadella said automated tasks using its Copilot tool nearly doubled since July. The report notes that Microsoft spent around $5bn less on AI investments and plans to cut thousands of jobs.