Alphabet's market value fell by $500 billion on Thursday after the company reported that AI-powered search summaries are reducing ad revenue, its primary business. The parent company of Google posted total revenue growth of 25% to $127.6 billion but saw profits drop 25% in the quarter. Negative free cash flow exceeded $9 billion, nearly double the loss from three months prior, as spending on AI investments outpaced earnings. Google's stock fell almost 13%, hitting a six-month low.
CEO Sundar Pichai has backed the company's massive AI spending. Philip Schindler, Google's chief business officer, said Wednesday he felt "very good about our trajectory" with an AI-focused search engine, but investors punished the stock anyway.
Amazon's shares fell 6% after the company reported negative free cash flow of $42 billion, a six-fold increase over three months, despite quarterly revenue growth of 11% to $201 billion. CEO Andy Jassy said the company is investing heavily in two businesses that could each generate $1 trillion in future revenue, including computer chip manufacturing and AI developer platform Bedrock. "We can fund this plan, and I think it will forever change the size, the revenue, the free cash flow of Amazon," Jassy said.
Microsoft's stock fell less than 1% after reporting 19% revenue growth to $92.3 billion. The company spent roughly $5 billion less on AI investment than expected and announced plans to cut thousands of workers. Its cloud business grew 30% to $63 billion. CEO Satya Nadella said daily users of Copilot, Microsoft's AI tool, grew 500% year over year.
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."