At first glance, the quarterly results of Alphabet, the parent company of Google, were not at all bad.
Total revenue grew 25% compared to last year, hitting $127.6bn. It was buoyed by the ongoing success of Google Cloud, where revenue grew by 103% to almost $31bn.
However, profits at the company fell by a considerable 25% during the quarter. And for the second time in its history as a public company, it showed negative free cash flow, this time in excess of $9bn. That’s almost twice the loss of cash Alphabet showed just three months ago.
Cash flow represents the money a company retains after paying for operations and investments, meaning Alphabet is now spending more money than it is bringing in. That new level of spending is almost entirely dedicated to Google’s AI investments.
By the end of Thursday, the company’s total stock market value had fallen to $3.46 trillion from $3.97 trillion the day before.
Google’s omnipresent search engine now defaults to AI summaries of a person’s query, and that hit the number of advertisements it was able to sell during the quarter.
The sale of ads that appear alongside Google Search results is the vast majority of Alphabet’s business.
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.”
Although Phillip Schindler, Google’s chief business officer, said on Wednesday that he felt “very good about our trajectory” with an AI-focused version of the search engine, the company’s stock fell by almost 13% on Thursday, its second lowest showing this year.
