On Thursday, Google’s parent company, Alphabet, lost just over $500 billion in value, according to the BBC. That works out to about £374 billion. 

The drop came right after the company shared its last quarterly business update of the year.

In short, investors got nervous after Google admitted that its own AI tools are starting to hurt the business that pays most of its bills.

Microsoft and Amazon also reported their results this week. All three companies plan to keep pouring huge amounts of money into artificial intelligence. 

Investors, however, are asking: can these giants keep growing their main businesses while they spend like this?

Numbers

At first, Alphabet’s results seemed strong. Total revenue jumped 25% from a year earlier, reaching $127.6 billion. 

Google Cloud’s revenue more than doubled, rising 103% to almost $31 billion.

But then profits fell by 25% during the quarter. And Alphabet reported negative free cash flow of more than $9 billion. 

That’s only the second time this has happened since the company went public. It’s also nearly double the cash shortfall the company showed just three months earlier.

Free cash flow is the money a company keeps after it pays for its operations and investments. When that number goes negative, the company is spending more than it brings in. 

And in Alphabet’s case, nearly all of that extra spending is going toward AI.

By the end of Thursday, Alphabet’s total market value had dropped to $3.46 trillion, down from $3.97 trillion the day before. 

The stock fell almost 13% and hit a six-month low. That was its second-worst day of the year.

Google’s AI

Google Search now shows AI summaries by default when someone types in a question. That sounds handy for users but bears a high cost for Google.

When an AI summary answers your question at the top of the page, there’s less room for ads, and fewer reasons to click on them. As a result, Google sold fewer search ads this quarter.

Ads that appear next to Google Search results make up the vast majority of Alphabet’s business. Therefore, Google’s new technology is cutting into the very thing that funds it.

Tracy Woo, a principal analyst at the research firm Forrester, explained that the weak search results show how hard it is to pay for massive AI investments while keeping older businesses strong.

Philipp Schindler, the company’s chief business officer, said on Wednesday that he felt “very good about our trajectory” with the AI-focused version of search. 

Wall Street clearly wasn’t convinced, at least not yet.

Amazon

Amazon also had a rough Thursday. Its shares slid 6% in after-hours trading once its results came out.

The company’s sales grew 11% to $201 billion for the quarter. The shock, however, was the cash flow figure, which came in at negative $42 billion.

That means Amazon is also spending more than it earns. On top of that, its spending gap grew six times larger in just three months.

Yet, Amazon chief executive Andy Jassy said the company has a shot at building not one, but two businesses that could each bring in $1 trillion someday.

During a call with financial analysts, he kept returning to two areas. The first is Amazon designing and selling its own computer chips. 

The second is Bedrock, Amazon’s AI developer platform. Bedrock gives paying customers access to most of the major AI models and tools in one place.

Jassy also argued that no single AI company will win everything. “There is not one tool to rule the world,” he said, pointing to more than 20 years of lessons inside Amazon.

Analysts pushed him several times to explain the scale of the spending. Jassy admitted it “would be more convenient” to spread the costs over the next 25 years. 

Then he added, “That’s not the world we live in.”

Amazon can afford the plan, and Andy Jassy believes it will permanently change the size, revenue, and cash flow of the business.

Microsoft 

Microsoft’s shares dipped by less than 1% on Thursday. In this quarter, it spent about $5 billion less on AI-related investments. 

Earlier in the week, it also announced plans to cut thousands of jobs, which will bring its costs down further.

Meanwhile, sales kept climbing. Revenue rose 19% from a year earlier to $92.3 billion, and its key cloud business grew 30% to $63 billion.

Chief executive Satya Nadella also shared some numbers for Copilot, the company’s AI assistant. 

He said automated tasks have nearly doubled since July, and daily users are up 500% from a year ago.