Google parent Alphabet saw its quarterly profit drop by 25% despite total revenue climbing to $127.6 billion on the back of rapid Google Cloud growth. The introduction of default AI summaries directly undercut search advertising capacity, prompting a steep sell-off that pushed shares to a six-month low. Heavy technology investments further strained Alphabet's balance sheet, leading to negative free cash flow of more than $9 billion.
Key points
Default artificial intelligence summaries are actively harming Alphabet's core business b…: Default artificial intelligence summaries are actively harming Alphabet's core business by reducing the number of search ads the company can sell.
Unprecedented capital spending on artificial intelligence infrastructure is eroding corpo…: Unprecedented capital spending on artificial intelligence infrastructure is eroding corporate profits and rapidly depleting free cash flow.
Wall Street remains deeply concerned about the massive AI expenditure plans shared by Goo…: Wall Street remains deeply concerned about the massive AI expenditure plans shared by Google, Microsoft, and Amazon.
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Google parent Alphabet lost just over $500bn (£374bn) in value on Thursday after it rattled Wall Street with its last update of the year on their business operations.
Google spooked investors so badly that its stock hit a six-month low, after it revealed its artificial intelligence (AI) summaries on search were affecting ad revenue.
Microsoft and Amazon also updated investors this week, and joined Google in plans to keep spending astronomical sums of cash in an ongoing AI race.
But investors appeared dismayed at the impacts these plans are having on the ability of each to keep growing their core lines of business.
Google AI is eating its core business
At first glance, the quarterly results of Alphabet, the parent company of Google, were not at all bad.
Total revenue grew 25% compared to last year, hitting $127.6bn. It was buoyed by the ongoing success of Google Cloud, where revenue grew by 103% to almost $31bn.
However, profits at the company fell by a considerable 25% during the quarter. And for the second time in its history as…
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