Google’s parent company Alphabet has lost more than $500 billion in market value after warning that AI-generated search summaries are affecting advertising revenue, while investors grow increasingly concerned about the enormous cost of the technology race.
Google’s parent company Alphabet lost more than $500 billion in market value on Thursday (29.10.26) after warning investors that artificial intelligence (AI) is beginning to affect advertising revenue from its core search business.
Alphabet’s shares fell almost 13 per cent, hitting a six-month low and reducing the company’s stock market value from $3.97 trillion to $3.46 trillion.
The sell-off came despite strong overall revenue growth.
Alphabet reported quarterly revenue of $127.6 billion, up 25 per cent from a year earlier, while Google Cloud revenue more than doubled to almost $31 billion.
However, profits fell 25 per cent and Alphabet recorded negative free cash flow of more than $9 billion, its second such result since becoming a public company.
The company said much of its increased spending was being directed towards AI.
The biggest concern for investors was Google’s search business, which generates the vast majority of Alphabet’s advertising revenue.
Google now increasingly presents AI-generated summaries at the top of search results, reducing the space available for traditional advertisements.
Tracy Woo, a principal analyst at Forrester, said the results highlighted the difficulty of financing huge AI investments while protecting Google’s established businesses.
The warning came as other technology giants also revealed the cost of their AI strategies.
Amazon shares fell six per cent after the company reported negative free cash flow of $42 billion, while quarterly revenue rose 11 per cent to $201 billion.
Amazon chief executive Andy Jassy defended the spending, saying the company could eventually build major businesses around its own computer chips and its AI development platform Bedrock.
Microsoft, meanwhile, reported revenue of $92.3 billion, up 19 per cent, while its cloud business grew 30 per cent to $63 billion.
Its shares fell less than one per cent.
Microsoft has also announced thousands of job cuts, while reducing AI-related investment by around $5 billion.
The contrasting reactions suggest investors are becoming more focused on whether huge AI investments will translate into sustainable profits, rather than simply rewarding companies for rapid growth in AI spending.
Google chief business officer Phillip Schindler said he felt “very good about our trajectory” as the company develops an AI-focused version of search.
But the market response suggests Google’s transformation could come at a significant cost if AI changes the economics of the advertising business that made it one of the world’s most valuable companies.
Google value plummets by $500 billion as AI searches impact ad revenue
