Alphabet’s shares fell 13 per cent on Thursday, wiping half a trillion dollars from its market value after it revealed that its “AI mode” searches put its core advertising business profits at risk.

The Google owner released its third-quarter revenue statement on Wednesday, which revealed a 25 per cent increase in revenue from the year before but a drop in free cash flow to minus $9.1 billion. This marked Google’s second ever quarter of negative cashflow since going public in 2004, fuelled by a $50 billion spend on AI infrastructure.

The negative cashflow was higher than anticipated by analysts and comes at a time when investors are increasingly wary about the massive costs associated with developing AI.

Revenues for Google’s primary money maker, search, also grew more slowly than earlier in the year. In the investor call, senior vice president and chief business officer for Google, Philipp Schindler, attributed this to rising use of “AI mode” searches, which are more difficult to monetise:

“The strong growth in AI Mode queries had an impact because of the lower monetisation we were seeing in AI Mode,” he said. “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.”

This confidence did not sway investors, however, and the company’s market cap fell by around $500 billion, the second largest such drop in US history after fellow tech giant Nvidia’s $593 billion rout in January 2025.

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