.Google Suffers Major Blow in AI Race as Market Value Falls by More Than $500 Billion

The intensifying race in artificial intelligence (AI) has come at a heavy cost for Google, with the company losing more than $500 billion in market value in a single day. Its shares fell to their lowest level in the past six months, while profits at Google’s parent company, Alphabet, also declined by 25 percent. Meanwhile, heavy spending by Amazon and Microsoft has raised concerns among investors. The rapid development of AI has created new business opportunities for the world’s leading technology companies. However, massive investments in the sector are increasingly becoming a source of concern for investors.

According to the BBC, Google’s parent company, Alphabet, lost more than $500 billion in market value on Thursday, with its shares falling 13 percent to their lowest level in six months. The decline came after the company released its final business update of the year, revealing that AI-generated answers in Google Search were affecting advertising revenue. At the close of trading on Thursday, Alphabet’s total market value fell from $3.97 trillion to $3.46 trillion, marking its second-largest decline of the year. Interestingly, Alphabet’s quarterly financial results appeared strong on the surface. The company’s overall revenue increased by 25 percent compared with the same period last year, reaching $127.6 billion.

Google Cloud played a significant role in this growth, with its revenue rising 103 percent to approximately $31 billion. However, the company’s quarterly profit declined by 25 percent, while its free cash flow fell to a negative figure exceeding $9 billion. This marks the second time Alphabet has reported negative free cash flow as a publicly traded company. The company had also faced a deficit in this area during the preceding three-month period, although the current shortfall is nearly twice as large. Free cash flow refers to the money a company retains after covering its operating expenses and investments. A negative figure indicates that the company is spending more money than it is generating in revenue. The primary reason for Alphabet’s increased spending is its massive investment in artificial intelligence.

Google Search now displays AI-generated summaries in response to users’ questions. However, this change has affected the sale of advertisements displayed alongside search results. Advertising remains Alphabet’s largest source of business and revenue. According to Tracy Woo, principal analyst at research firm Forrester, Google’s search business results highlight the challenge of maintaining an established, profitable business while making large-scale investments in AI. Google Chief Business Officer Philipp Schindler said on Wednesday that he was satisfied with the progress of the company’s new AI-powered search system. Despite his remarks, however, investor confidence failed to recover.

Meanwhile, Amazon shares also fell by approximately 6 percent in after-hours trading on Thursday following the release of its financial results. The company’s quarterly revenue increased by 11 percent to $201 billion. However, its free cash flow reached a negative $42 billion, nearly six times higher than the shortfall recorded in the previous three months. According to Amazon CEO Andy Jassy, the company sees significant business opportunities in artificial intelligence and its internally developed computer chips. He estimates that each of these sectors could eventually become a trillion-dollar business. Jassy said the company could afford the substantial investment costs and that these investments could generate significant financial benefits in the future.

Meanwhile, Microsoft shares also declined by less than 1 percent. However, the company’s quarterly revenue increased by 19 percent to $92.3 billion, while its cloud business revenue rose by 30 percent to $63 billion. Microsoft spent approximately $5 billion less on AI-related investments and also announced plans this week that could involve laying off thousands of employees. According to Microsoft CEO Satya Nadella, the number of daily users of the company’s AI tool, Copilot, has increased by 500 percent compared with the previous year. The number of tasks automatically completed through the tool has also nearly doubled since July. According to Forrester analyst Tracy Woo, demand for AI among businesses remains strong. However, investors now want to know which companies will benefit financially from these massive investments and to what extent. The financial results of Google, Amazon and Microsoft indicate that investors are increasingly focusing on the actual revenue and profits generated by AI rather than its future potential.