Alphabet’s latest quarterly results reveal a growing trade-off between strong revenue growth and the rising cost of Google’s artificial intelligence investments. Revenue increased 25% year over year to $127.6 billion, helped by a 103% increase in Google Cloud revenue to approximately $31 billion. However, profits fell 25%, free cash flow turned negative by more than $9 billion, and Alphabet’s market capitalization dropped to $3.46 trillion by the end of Thursday.
AI spending weighs on Alphabet’s cash flow
Alphabet recorded negative free cash flow for only the second time since becoming a publicly traded company. The shortfall exceeded $9 billion, nearly twice the cash loss reported just three months earlier.
Free cash flow is the money a company has left after paying its operating and investment expenses. Alphabet’s latest figures indicate that it is currently spending more money than it is bringing in, with the new spending level focused almost entirely on Google’s AI investments.
Despite the company’s 25% year-over-year revenue growth, profits declined by the same percentage during the quarter. By the end of Thursday, Alphabet’s market capitalization had fallen from $3.97 trillion a day earlier to $3.46 trillion.
Google Search faces pressure as AI summaries expand
Google’s ubiquitous search engine now displays AI summaries of users’ queries by default. The change came during a quarter in which the number of ads Google was able to sell also became a concern. Advertising alongside Google search results remains a major part of Alphabet’s business.
Tracy Wu, principal analyst at Forrester, said Alphabet’s disappointing search results “highlight the challenges of funding large-scale AI investments while maintaining the strength of existing businesses.”
Alphabet stock falls after results
Google Chief Business Officer Philipp Schindler said Wednesday that he was “very happy with the trajectory we’re on” for the AI-focused version of the search engine.
Investors responded less positively. Alphabet’s stock fell almost 13% on Thursday, reaching its second-lowest level of the year.
Source: www.bbc.co.uk