Alphabet's market value plunged over $500bn on Thursday after the company disclosed that its AI-powered search summaries are reducing ad sales, its primary revenue source. The stock fell nearly 13% to a six-month low.
Alphabet reported total revenue growth of 25% to $127.6bn for the quarter, with Google Cloud revenue up 103%. Profits fell 25%, and the company posted negative free cash flow exceeding $9bn, nearly double the loss from three months prior. CEO Sundar Pichai has backed the company's massive AI spending.
Google's search engine now defaults to AI summaries of user queries, which cut into the number of ads the company can sell alongside search results. Google Chief Business Officer Phillip Schindler said Wednesday he felt "very good about our trajectory" with the AI-focused search version.
Amazon's stock fell 6% after hours on Thursday following disappointing quarterly results. The company reported revenue growth of 11% to $201bn but negative cash flow of $42bn, up six-fold in three months. CEO Andy Jassy said the spending could ultimately transform Amazon's revenue and cash flow, citing opportunities in custom computer chips and its AI developer platform Bedrock. He did not specify which two businesses could each generate $1 trillion.
Microsoft's shares fell less than 1% on Thursday. The company reported revenue growth of 19% to $92.3bn, with cloud business revenue up 30% to $63bn. Microsoft spent around $5bn less on AI investments and announced plans to cut thousands of workers. CEO Satya Nadella said Copilot daily users grew 500% year over year.
Tracy Woo, principal analyst at Forrester, said the results highlight Wall Street's focus on which tech companies will ultimately capture value from AI. "The challenge of funding massive AI investments while maintaining the strength of established businesses" remains unresolved across the sector.