(Image credit: Erman Gunes via Getty Images / Future)
Even during a good financial year, a big tech investor is seemingly never satisfied. Case in point, while Google Search grew by 12% year-over-year and made $63.3 billion this past quarter, parent company Alphabet's share price took a pretty spectacular tumble.
Despite making an amount of money the mere thought of which sucks the air right out of my lungs, Search's revenue this quarter was actually below Wall Street's expectations. As a result, Alphabet's shares are down 13% and $500 billion has been wiped from its market value (via The Financial Times).
The share price is continuing to fluctuate and, according to CNBC, it could be the worst post-earnings call decline ever. This follows $1 trillion worth of air escaping from the AI party balloon earlier this month, due to anxious investors widely selling off stock. So, how did Alphabet get its ABC's so wrong? Long story short, Google's own AI features may be eating into its Search revenue.
This is despite Search apparently seeing the fastest year-over-year query growth rate in half a decade. During Alphabet's most recent earnings call, Google's senior vice president and chief business officer Philipp Schindler was asked to explain this 'disconnect'.
"It's worth noting that the strong growth in AI Mode queries had an impact because of the lower monetization we were seeing in AI Mode," Schindler says. "To be clear, we feel very good about our trajectory here. Our ad experiments have shown promising results, and we're now scaling ads within both AI Overviews and AI Mode to more users and more queries, including, as I mentioned, international markets and multiturn ads in the US."
In other words, yes, AI Mode is eating Search's lunch but Google is hoping to scale up its kitchen production in order to keep both of its babies fed. Or something like that—the metaphor got away from me in the middle there.
Anyway, these financial results only serve to add fuel to the fire of investor fear that Google Search is getting singed by the likes of ChatGPT. I mean, compare and contrast the amount of ads you see on the first page of Google results against what you typically see from an LLM chatbot. As Google tells it, more ads are likely coming to AI Overviews and AI Mode in the near future to remedy its 'disconnect.'
On top of what investors are seeing as financial underperformance, Google is also knee deep in negative cash flow. Initial projections suggested this wouldn't venture into the red beyond $3.5 billion, but Google was actually looking at minus $9.1 billion at the end of September. This is apparently only the second quarter in which Google has reported negative cash flow since it went public back in 2004.
Having spent $51.3 billion on AI in the last quarter alone, such a plunge is perhaps unsurprising. The company intends to spend even more in the future, having apparently committed itself to data centre and related purchases in excess of $1 trillion—despite investors growing increasingly anxious about whether a return on AI investment will ever fully materialise.
