Kali Hays,Technology reporterand Mitchell Labiak,Business reporter
EPA
Google-owner Alphabet lost just over $500bn (£374bn) in value on Thursday after it revealed its own artificial intelligence (AI) summaries were hitting search advertising revenue.
Chief business officer Philipp Schindler said Google's "AI mode", where it answers questions conversationally, was eating into the money it makes from ads which appear next to results to traditional search questions.
Yet, Schindler said he felt "very good about our trajectory" with an AI-focused version of the search engine.
Google's role in answering the world's questions has been challenged by the AI boom, with millions of people using programs such as ChatGPT and Claude instead.
Kim Scott, who formerly led Google's advertising business, told the BBC's Today programme that the company would "rather eat its own lunch than allow someone else to eat their lunch" by having its own AI summaries hit its search revenue.
She said that Google was founded on the idea of making long-term bets on technology – even if they hurt the firm in the short term.
"I think they're making a long-term bet on AI," she said.
In its results published on Wednesday, Alphabet revealed that total revenue grew 25% in the three months to the end of September, compared to the same period last year, hitting $127.6bn.
However, the firm did not make as much money as analysts had predicted, particularly in its advertising arm, which spooked many investors.
Shares in the company plummeted over 12% to a six-month low following the release of the results.
By the end of Thursday, the company's total stock market value had fallen to $3.46 trillion from $3.97 trillion the day before.
Tracy Woo, a principal analyst at Forrester, said Alphabet's disappointing Search business results "highlights the challenge of funding massive AI investments while maintaining the strength of established businesses."
Investors not buying Amazon's trillion-dollar business hopes
Microsoft and Amazon also issued updates this week, and joined Google in plans to keep spending huge sums of cash in the 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.
Amazon's stock took a hit on Thursday , with its shares falling 6% in after-hours trading.
Alongside quarterly sales growth of 11%, hitting $201bn, the company shared a staggering cash flow figure of negative $42bn.
That number shows that Amazon is not only spending more money than it makes, but that spending has increased six-fold over the span of three months.
Chief executive Andy Jassy claimed the business was spending in part because it had the chance at, not one, but two businesses that could end up bringing in $1 trillion for Amazon the future.
Jassy noted that Amazon's cloud services business, as well as retail stores, may be those businesses. During a call with financial analysts he also repeatedly mentioned the financial opportunity presented by Amazon making and selling its own computer chips, as well as its AI developer platform Bedrock, which offers paying users access to most major AI models and tools.
"One of the lessons we've learned over 20-plus years is that there is not one tool to rule the world," Jassy said. "People always assume whatever is in the lead early on will be the only thing that people use - it's never true."
As Jassy was asked several times to explain the company's spending, he admitted it "would be more convenient" if it were spread over the next 25 years. "That's not the world we live in," he added.
"We can fund this plan, and I think it will forever change the size, the revenue, the free cash flow of Amazon."
Microsoft begs the question of AI's real value
Wall Street's reaction to Microsoft's update was more muted, with shares falling by less than 1% on Thursday.
The company, which is also one of OpenAI's largest investors, spent around $5bn less on investments dedicated to AI. It also revealed earlier this week plans to cut thousands of workers, which will further reduce the company's costs.
Meanwhile, its revenue grew 19% from a year earlier, hitting $92.3bn for the quarter. Its crucial cloud business grew by 30% to $63bn.
Chief executive Satya Nadella said the use of Copilot, Microsoft's AI chatbot and tool, has seen "automated tasks nearly double since July" as daily users grew by 500% from a year ago.
Usually lower spending and growing sales earns a positive reaction from investors.
But Woo said Wall Street is trying to look farther into the future when it comes to which businesses will truly make good on their big promises around AI.
"Microsoft's results reinforce that enterprise demand for AI remains strong, but they also highlight a much bigger question facing the technology industry, where AI value will ultimately be captured," Woo said.