Shares in Alphabet, Google’s parent company, fell sharply after it published third-quarter results. According to the BBC, the company’s value dropped by about $500 billion, and the share price hit a six-month low.
Alphabet released its results on Wednesday, October 28, after the market closed. As AFP reports, the shares had already fallen more than 10% in after-hours trading, as profit came in below expectations and advertising grew more slowly than anticipated. At the same time, the company kept its high spending on artificial intelligence. By Thursday, October 29, the sell-off had carried into regular trading: according to the BBC, the share price reached its lowest level in half a year, and the Nasdaq, as Investing.com writes, was down more than 1%.
What the results showed
According to AFP, advertising revenue rose 11% to $82 billion and was lower than forecasts. Revenue from search, still Google’s largest source of income, grew 12% to $63.4 billion. In the previous quarter, growth was 17%. Investing.com assesses that this is the slowest pace in five quarters.
Cloud performed noticeably better. Google Cloud increased revenue by 103% to $30.7 billion, above analysts’ expectations. The company said that sales of its own TPU chips for AI computing contributed significantly to this. During the quarter, Alphabet also raised $28.7 billion from bond issues and $12.4 billion from new share issues to finance its AI investments (AFP).
Why the market got scared
The most attention was drawn to AI Mode in search. Philipp Schindler, Google’s chief business officer, told analysts during a call that strong growth in queries in AI Mode affected results due to lower monetisation. He added that ad tests in this mode are delivering promising results and that the company is expanding them to more users and queries (quotes via CNBC).
Analysts are asking whether this marks the beginning of a lasting change in internet users’ behaviour. CNBC quotes one of them as saying that Google must now prove it is not in a lasting decline due to users shifting from search to AI chatbots. Another interviewee, Professor Tom Davenport, speaking to Marketplace, believes instead that the revenue drop is temporary and that Google still has a huge source of income from search.
What it means
For investors, including Polish ones who hold Alphabet shares or ETFs based on American technology company indices, this is a signal that the market is beginning to price in risk to Google’s advertising model. For publishers and advertisers, the key question is how quickly ads in AI responses will start to earn as much as classic links. We have already written about the problem of traffic to news sites: the drop in traffic from Google after the introduction of AI Overviews.
At the time of publication, the company had not given a date by which monetisation of AI Mode is expected to match classic search. The exact amount of market value lost depends on the closing price and may differ depending on the source.
