Amazon reports $42bn negative cash flow after sixfold spending surge
Google parent Alphabet lost just over $500bn (£374bn) in stock market value on Thursday after revealing that its AI-generated search summaries cut into advertising revenue during the quarter. The company’s shares fell almost 13%, hitting a six-month low, and its market value dropped to $3.46 trillion from $3.97 trillion the day before.
The sell-off capped a week in which Microsoft and Amazon also updated investors, with all three companies outlining plans to keep spending heavily on artificial intelligence. Investors appeared dismayed at how those plans are affecting each company’s ability to keep growing its core business.
Alphabet’s headline numbers were strong: total revenue grew 25% from a year earlier to $127.6bn, buoyed by Google Cloud, where revenue rose 103% to almost $31bn. But profit fell 25% during the quarter, and for the second time in its history as a public company, Alphabet posted negative free cash flow — in excess of $9bn and almost twice the cash loss it reported three months ago. Cash flow is the money a company retains after paying for operations and investments; Alphabet now spends more than it brings in, with that spending almost entirely dedicated to Google’s AI investments.
The strain showed in the company’s main business. Google’s search engine now defaults to AI summaries of a user’s query, and the change reduced the number of advertisements the company could sell during the quarter. Ads sold alongside search results make up the vast majority of Alphabet’s business.
Phillip Schindler, Google’s chief business officer, said on Wednesday that he felt “very good about our trajectory” with the AI-focused version of the search engine. The stock nevertheless fell almost 13% on Thursday, its second lowest showing this year.
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.”
Amazon’s shares fell 6% in after-hours trading after its results disappointed investors. The company reported sales growth of 11%, to $201bn, alongside a cash flow figure of negative $42bn — meaning Amazon is spending more than it makes, with that spending up six-fold over three months.
Chief Executive Andy Jassey said the company was spending in part because it had a chance at two businesses that could each bring in $1 trillion for Amazon in the future. “There has never been a trillion dollar revenue business, and we may have two of them in the next 5-10 years,” Jassey said. He did not specify which two businesses those may be.
Microsoft’s shares fell less than 1% on Thursday. The company, one of OpenAI’s largest investors, spent around $5bn less on investments dedicated to AI and this week revealed plans to cut thousands of workers, which will further reduce its costs. Revenue grew 19% from a year earlier to $92.3bn, with its cloud business up 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,” with daily users growing 500% from a year ago.
Usually, lower spending and growing sales earn a positive reaction from investors. Woo said Wall Street is instead trying to look further into the future at 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.