Alphabet, the parent company of Google, lost more than $500 billion in market value after its latest update to its business results this year caused concern on Wall Street.
Google has so alarmed investors that the company’s shares have hit their lowest level in six months after revealing that artificial intelligence (AI)-generated summaries displayed in its search engine are hurting advertising revenue, according to the BBC.
Microsoft and Amazon also presented updates to investors this week and announced that they plan to continue spending huge sums in the race to develop artificial intelligence.
However, investors seem dissatisfied with the impact of these plans on the companies’ ability to further develop their core activities.
Google’s artificial intelligence is affecting its core business
At first glance, the quarterly results of Alphabet, Google’s parent company, were not at all poor.
Total revenue increased by 25% compared to the same period last year, reaching $127.6 billion.
A major role was played by the continued success of Google Cloud, whose revenue grew by 103% to nearly $31 billion.
However, the company’s profit fell considerably, by 25% in that quarter.
Also, for the second time since going public, Alphabet reported negative free cash flow of more than $9 billion. That loss is nearly double the one it recorded just three months earlier.
Cash flow is the money a company has left over after paying for operating expenses and investments. As a result, Alphabet is currently spending more money than it is taking in. This high level of spending is almost entirely going toward Google’s investments in artificial intelligence.
At the close of trading on Thursday, the company’s total market value had fallen to $3.46 trillion, from $3.97 trillion the previous day.
Google’s global search engine now defaults to displaying artificial intelligence-generated summaries for users’ searches, a change that has affected the number of ads the company sold in the quarter.
Selling ads displayed alongside Google search results represents the bulk of Alphabet’s business.
Tracy Woo, principal analyst at Forrester, said the disappointing results from Alphabet’s search division “highlight the difficulty of financing massive investments in artificial intelligence while maintaining the strength of already established businesses.”
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