Google’s Market Value Falls by $500 Billion, Raising Questions About AI’s Profitability
Alphabet, Google’s parent company, lost about $500 billion in market value in one trading session on Oct. 29. Its shares fell more than 12% after the company reported its third-quarter results. It was the worst trading day in Google’s history.
Investors were concerned that Google’s growing investment in artificial intelligence (AI) may not bring in enough profit. In particular, AI-powered search is attracting users, but it does not yet appear to earn as much from advertising as traditional search.
Search use is growing, but ad growth is slowing
Alphabet reported $127.6 billion in revenue for the quarter, up 25% from the same period last year. Revenue from Google Search and other advertising rose 12% to $63.35 billion.
That growth was slower than in earlier quarters: search and advertising revenue grew 17% in the second quarter and 19% in the first quarter.
CEO Sundar Pichai said the number of search queries grew at its fastest rate in five years. But more people using AI search does not automatically mean more advertising income. Google executives said that activity in AI Mode contributed to slower advertising growth. Changes in foreign currency values were the biggest factor, they said, but AI’s lower advertising returns also played a part.
AI investment comes with a high cost
Alphabet spent $51.4 billion on capital projects during the quarter, including investments in its technology and infrastructure. That was more than the company’s $42.3 billion in operating cash flow. Alphabet reported negative free cash flow of $9.1 billion.
At the same time, Google Cloud showed strong growth. Its revenue increased 103% to $30.7 billion, while operating income rose to $11.1 billion. This suggests that Alphabet’s AI investments may create business opportunities beyond search advertising.
Google is focused on improving AI search
Pichai has said the company wants to make AI-powered search more useful before fully developing how to earn advertising revenue from it. That approach may help improve the product, but investors are watching closely to see when it will produce stronger profits.
The fall in Google’s market value does not prove that its AI strategy has failed. But it highlights a major question for the technology industry: Can companies turn growing interest in AI into lasting profits without hurting the businesses that made them successful?
