Alphabet tumbles as AI search erodes advertising revenue

Google-owner Alphabet lost just over $500bn (£374bn) in market value on Thursday after revealing that its conversational AI mode was eating into revenue from ads alongside traditional search results. Chief business officer Philipp Schindler nevertheless expressed confidence in the shift, as Google faces competition from services such as ChatGPT and Claude.

Alphabet reported revenue growth of 25% in the three months to the end of September, reaching $127.6bn, but earnings from its advertising business disappointed analysts. Shares fell over 12%, taking the company to a six-month low. Former Google advertising executive Kim Scott described the strategy as a long-term technology bet that could hurt the business in the short term.

Amazon also faced investor resistance to its spending plans. Quarterly sales rose 11% to $201bn, but cash flow was negative $42bn, and shares fell 6% in after-hours trading on Thursday. Chief executive Andy Jassy defended the investment, pointing to opportunities in cloud services, retail, proprietary chips and the Bedrock AI developer platform.

Microsoft received a more muted response, with shares falling by less than 1% on Thursday despite reduced AI investment spending and revenue growth of 19% to $92.3bn. Forrester analyst Tracy Woo said enterprise demand remained strong, but investors were increasingly focused on where AI’s financial value would ultimately be captured.