AI Market Plunge: Alphabet and Microsoft earnings jolt investors, wipe out $190 billion

AI-related companies witnessed a loss of $190 billion in market capitalisation late on Tuesday, triggered by disappointing quarterly reports from tech giants Microsoft and Alphabet.

According to Reuters, the selloff highlighted the heightened expectations among investors following a recent AI-fuelled stock market surge, which had propelled these companies' shares to record highs, banking on the widespread integration of AI technology across various corporate sectors.

Alphabet, the parent company of Google, bore the brunt of the market downturn as its shares plummeted by 5.6 per cent. The disappointing December-quarter ad revenue, falling short of expectations, was a major factor in this decline.

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Additionally, Alphabet announced a significant increase in spending on data centres to bolster its AI initiatives, shedding light on the intense competition it faces against AI rival Microsoft.

Despite a slight beat in Google Cloud revenue growth, fuelled by AI interest, Microsoft's Azure outpaced its competitor. Investors reacted swiftly to these revelations, causing Alphabet's stock to take a hit.

Reuters cited an analyst, who said, "The sell-off reflects the market's realisation that achieving success in the highly competitive AI landscape comes at a substantial cost."

Microsoft, despite beating analyst estimates for quarterly revenue, experienced a 0.7 per cent drop in its stock after reaching an intra-day record high earlier in the day.

Microsoft's optimism about AI had propelled its market value above $3 trillion this month, surpassing tech giant Apple. The company's success was attributed to the incorporation of new AI features that attracted customers to its cloud and Windows services.

However, the dip in its stock after the quarterly report suggests that even the tech giant is not immune to the volatile nature of the AI market. Investors are now closely watching how these companies navigate the challenges and capitalise on the promises of AI.

The plunge extended beyond Alphabet and Microsoft, affecting chipmaker Advanced Micro Devices (AMD), which witnessed a 6 per cent decline in its stock value. Despite projecting robust sales for its AI processors, the company's forecast for first-quarter revenue fell short of estimates.

Similarly, Nvidia, whose shares had surged 27 per cent in January on the back of AI optimism, experienced a 2 per cent decline in extended trade. Super Micro Computer, a server maker benefiting from AI-related demand, also suffered, dropping over 3 per cent after reaching a record high on the back of blowout quarterly results the day before.

(With inputs from Reuters)