Big Tech has lost $900 billion in market value. AI is beginning to undermine the core businesses of these giants

The largest U.S. technology companies lost nearly $900 billion in market value during a massive sell-off following the release of quarterly earnings reports from giants such as Alphabet and Amazon, according to the Financial Times. The push into artificial intelligence has turned some of the most profitable companies in history into businesses that are rapidly burning through cash, the publication reports.

At the same time, the core business areas of these technology leaders—advertising, consumer services, and retail, which are the sources of funding for their AI expenditures—are beginning to show signs of a slowdown. And in some cases, their revenue is being undermined by the very technologies on which these companies are betting so heavily. The sector’s total spending on chips and data center infrastructure is approaching a record $740–750 billion this year, according to the FT.

Earnings reports have highlighted growing tensions stemming from IT giants’ shift toward artificial intelligence technologies, according to Bloomberg. To finance the global expansion of data centers, companies are issuing unprecedented amounts of debt, selling shares, and taking on trillions of dollars in future obligations. At the same time, these new products are reducing the companies’ profitability and diverting users away from their traditional services. Despite falling profitability and investor discontent, the companies are refusing to cut spending, the agency adds.

Alphabet reported this week that advertising revenue from search and partner channels posted its slowest growth in five quarters. The reason is the integration of new technologies into the search engine: Chief Commercial Officer Philipp Schindler acknowledged that searches conducted via the new AI Mode tab generate significantly less advertising revenue than traditional searches. At the same time, Alphabet confirmed its capital expenditure forecast, which could reach $205 billion this year. As a result, the company experienced the worst day on the stock market in its history. Not even the cloud segment—where annual revenue doubled and operating profit tripled— could salvage the situation.

Amazon also confirmed its intention to spend approximately $220 billion in capital expenditures in 2026, despite weakness in key segments. Sales growth for online stores slowed to 2%—the lowest rate in more than three years—while growth in the advertising business slowed to 11%, the worst pace since 2022, when the company began reporting advertising revenue as a separate line item. The slowdown is partly due to the shift of the Prime Day sale from the third quarter to the second. However, analysts had already factored this in and lowered their expectations; yet Amazon’s actual results turned out to be worse than even these adjusted forecasts and also overshadowed the success of the company’s cloud business.

Bloomberg notes that the situation is similar for other companies. Meta maintained its spending guidance but spooked investors with a warning that its new agent-based app, Muse, requires enormous computing power. Microsoft, despite a strong quarterly report and strict cost control, also failed to hold its ground: by the close of trading on Thursday, its shares had lost all of their morning gains and were down 0.2%.

"The market is wondering, 'How will all this pay off?'" said Dan Morgan, senior portfolio manager at Synovus Trust, commenting on Alphabet's financial report.

This year, Google is struggling to keep up with startups Anthropic and OpenAI in the AI race. According to Bloomberg Intelligence analyst Mandip Singh, if the company can regain its footing in model development, it will once again begin to deliver the expected returns to investors. “With all these transitional processes, we sometimes get too fixated on the business that generates stable revenue,” Singh noted. “Given how the cloud business is boosting margins, I feel that the combination of the cloud business and search, once they reach the cutting edge, will restore their profitability to previous levels.”

Launching new ad formats with a low margin that gradually increases over time is standard practice, according to Gene Munster, managing partner at Deepwater Asset Management, commenting on the weak monetization of Google AI Mode. According to him, a more significant challenge for the industry is creating agents capable of making purchases on behalf of users and earning a percentage of those transactions. According to the expert, the industry is on the verge of a fundamental shift in the advertising model: the battle for attention will no longer be with people, but with algorithms. “In the past, to influence buyer behavior, we used familiar search links or banners,” Münster summarized. “Now the challenge boils down to how to influence the bot itself.”

This article was AI-translated and verified by a human editor