Alphabet's stock value fell $500bn on Thursday after the company revealed that its conversational AI search mode was reducing advertising revenue, the core profit engine of Google's search business.
Chief business officer Philipp Schindler confirmed that Google's "AI mode", which answers questions directly rather than showing traditional search results, was cannibalizing ad sales. Schindler said he felt "very good about our trajectory" despite the impact.
Alphabet reported total revenue grew 25% in the three months to end September, reaching $127.6bn. Advertising revenue fell short of analyst expectations. Shares plummeted over 12% to a six-month low after Wednesday's results, pushing the company's market value down to $3.46 trillion from $3.97 trillion.
Kim Scott, who formerly led Google's advertising business, told the BBC that Google chose to deploy its own AI summaries rather than cede the market to competitors like ChatGPT and Claude. She characterized the move as a long-term bet on AI technology, even if it hurt near-term profits.
Forrester analyst Tracy Woo said the results highlight "the challenge of funding massive AI investments while maintaining the strength of established businesses."
Amazon's stock fell 6% on Thursday after reporting negative free cash flow of $42bn for the quarter, spending six times more than three months prior. Chief executive Andy Jassy said the company was making the bet because cloud services, retail, custom chips, and its AI platform Bedrock could each become $1 trillion businesses. Microsoft's shares fell less than 1%, with the company reporting 30% growth in cloud services and 500% year-over-year growth in daily Copilot users.