Alphabet loses $500 Billion in market cap in one day

Google’s own artificial intelligence (AI) search technology has now become a challenge to its core advertising business. Although user interest in AI-based search is growing, it earns less advertising revenue than conventional search. The effect has been felt in the stock market performance of Google’s parent company, Alphabet. In a single day, the company’s market value fell by about $500 billion.

On Thursday (October 29), Alphabet’s share price on the US stock market fell 12.64 percent. The shares dropped to their lowest level in six months. It was the company’s biggest single-day fall in its share price in several decades.

Alphabet’s chief business officer, Philipp Schindler, said the growing use of Google’s new “AI Mode” search is affecting advertising revenue growth. With this technology, users who ask a question get a detailed, conversational answer instead of a conventional list of search results. As a result, the opportunities to show ads, and the income from them, have not yet become equal to those of regular search.

Schindler remains optimistic about the future of AI-based search, however. In his view, Google is satisfied with the progress of the technology. Various tests of showing ads in AI Mode have produced positive results, and the company plans to extend the ad system to more users in the future.

The rapid changes in the technology sector are also changing how people look for information. Alongside conventional search engines, many users now use AI-based services such as ChatGPT and Claude. This has created new competition for Google, which has long held a dominant position in online information search.

Kim Scott, a former head of Google’s advertising business, told the BBC’s “Today” programme that the company wants to change its technology before rivals take over its market. In his view, short answers obtained through AI could reduce the advertising revenue of conventional search. But rather than leaving this change to competitors, Google is trying to adapt to the new system itself.

He added that Google has experience with long-term technology investment. Such investment may hurt profits in the short term, but it can bring large benefits in the future, and the company is following the same strategy with AI.

In its third-quarter financial report published on Wednesday (October 28), Alphabet said its total revenue for the three months from July to September this year was $127.6 billion, up 25 percent from the same period a year earlier. However, the company fell short of analysts’ forecasts for revenue and profit. Over the same period, net profit fell 25 percent.

Investors grew concerned in particular because revenue from Google’s search and advertising segment was lower than expected. Although search advertising revenue rose in the third quarter, the pace of growth slowed compared with the previous quarter. Heavy spending on building AI infrastructure and negative cash flow also hurt investor confidence.

According to market analysts, before Thursday’s share price fall, Alphabet’s market value was about $3.97 trillion. By the end of the day’s trading, it had fallen to about $3.46 trillion. That means about $510 billion was wiped from the company’s market value in a single day.

Tracy Wu, principal analyst at research firm Forrester, believes the slowdown in growth of Google’s search business poses a major challenge for the company. Funding massive investment in AI on one hand, and maintaining revenue from the long-established advertising business on the other, have both become critical for Alphabet.

Overall, although Google has made large investments in the race to maintain leadership in AI, its inability to ensure sufficient revenue from that technology has become a cause of concern for investors.