AI summary
Summary of article:
Alphabet’s stock price declined due to a lower than expected financial report and the impact of the AI discovery. Investors are concerned about the erosion of advertising models, insufficient recovery of AI investments, and temporary loss of AI product competitiveness.
The technology industry is changing rapidly, and innovators who are successful for a while sometimes end up causing revolutions themselves. For exampleNetflix Streaming service kills its own DVD rental business by Mail, Apple smartphonesiPhone Destroy your own music player iPod. Now, investors are worried about their turnGoogle Parent company Alphabet faces this fate.
Alphabet’s market value dropped by nearly $500 billion overnight on Friday, the 29th, mainly because its latest financial report showed an unexpected slowdown in the growth of its advertising business. With the rise of search powered by artificial intelligence (AI), there are fewer opportunities to advertise to users compared to traditional searches. This is a big problem because advertising revenue accounts for two-thirds of Alphabet’s revenue. Facebook’s parent company Meta Platforms’ advertising revenue is growing at more than double the rate.
Although Alphabet’s third-quarter advertising revenue growth of 11% is still good, minor changes to its long-term growth trajectory could still have a significant impact. Before the release of last quarter’s financial report, according to Bank of America (BofA) analysis, the value of Alphabet’s core search business was equivalent to US$1.5 trillion of the company’s market capitalization (US$4 trillion); But with the share price plunging on Thursday, it has theoretically wiped off a third of the value of the search business unit.
Investors are worried for two reasons.
At first, Alphabet spent a lot of money to build an AI data center, but the profit rate could not be sustained. Analysts surveyed by LSEG estimate there could be a US$40 billion funding gap by the end of next year. At that time, if advertising revenue is not enough to cover that portion, it may have to issue new shares or new debt to raise funds, or rely on the less-profitable cloud computing division for investment.
The second concern is that Alphabet’s AI products are currently at a loss. In the market for software coding agents, Anthropic and Cursor (which will be merged into SpaceX) currently lead the market; Alphabet has also been overtaken by Meta’s Muse in providing so-called AI agent personal assistants.
Financial Times columnist Foley pointed out that it would be arbitrary to say that Alphabet has lost its aura at this time. After all, in the AI race, the leader can be quickly overtaken, and then quickly caught up. A year ago, the Meta was a clear laggard, while the Lama 4 model was disappointing. In 2024, Alphabet’s Google AI even made a joke, suggesting “using glue to stick cheese on pizza.”
However, despite the fall in Alphabet’s share price on Thursday, the newly launched cutting-edge AI model Gemini 4 Carbon still ranks first in a prestigious benchmark test.
Foley said Alphabet could still make mistakes during transitions such as the transition from iPod to iPhone; But Alphabet has faced many big changes. Thursday’s decline in stock prices underscores the dramatic shifts in market values caused by AI, even for technology giants. Money can disappear in a moment, but it can also come back after being scattered.
Summary FAQ
-
The main reason is that the latest financial reports show an unexpected slowdown in the growth of the advertising business, and the market is worried that the core search and advertising models will be affected by AI search, causing the market value to increase by nearly US$500 billion in a single day.
-
The first is that AI data centers have invested heavily and cannot maintain profits, resulting in a funding gap of nearly US$40 billion. The second is that Alphabet’s AI products are lagging behind in competitiveness and facing pressure from rivals such as Anthropic, Cursor and Meta.
-
No. The article points out that the AI race is changing rapidly, and the leaders may be involved; Although Alphabet is risky, Gemini 4 Carbon won official testing, showing that the company can still regain its place in the transition.
