Power Players special: Searching for answers on Google

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Speaker D: Google has long been a company so integrated in our lives that it became a verb. Many of us no longer search things, we Google them. But could AI be shifting that? Investors in the company worried maybe this week, wiping half a trillion dollars in stock market value off the company's share price. So today on a special edition of Power Players from Business Daily, is Google a victim of wider worries about AI spending? Or is AI coming for the crown of the unquestioned king of search? Foreign? Welcome back to the program. I'm Will Bain here in bbchq.

Speaker E: And I'm Rahul Tanden in this very small studio with Will.

Speaker D: We haven't managed to get a bigger one in the last couple of days either. Uh, we're also joined for this special edition of the program by our, uh, Silicon Valley correspondent, Lily Jamali. Joining us from what? Well, you tell me, Lily. A frenetic Silicon Valley or taking it all in its stride, Silicon Valley?

Speaker F: Oh, gosh, all of the above. But I will say my studio speaks. Space is ample. So, um, thanks for that. Very comfortable. Thank you. You like Michelle

Speaker D: Fleury luxuriating in room. Um, $500 billion. To put that in a bit of context for people, it's the amount that you could buy. Two other tech media giants, Netflix and Disney, still have a bit of cash left over. Uh, I'll ask you. First Rahul and then Lily out There. What on earth has gone on this week?

Speaker E: It's incredible. I've got a lot of friends who, who are in the market and I've not been able to get hold of quite a few of them over the last 24. Uh, you look at the figures, it's earnings season when we know how companies are doing. The figures look pretty good, didn't they? Revenue up 25%. Cloud revenue up 103%. But Alphabet is based on Google. It's based on searches. And for the first time that whole advertising model, people began to question it because its growth slowed down from 17 to 12% because people are using AI instead. Well Lily, what do you use when you're searching nowadays? Is it Google anymore? For me, ChatGPT, some of the other ones.

Speaker F: I will say I never thought I would say this, but I am using less and less Google search, more and more chatgpt. I find that um, I personally don't like having AI thrust upon me when I'm trying to do a Google search. And so that is actually just change my habits. I really am a longtime fan of the Google search box, but things have changed for me. And just to contextualize this massive drop, uh, that we saw in Google stock and really haven't seen much recovery today, uh, second biggest drop in Wall street history in terms of market value. The only other one, the biggest was Nvidia when the Chinese open Source model DeepSeek R1 came out in January of 2025. So this is historic.

Speaker D: So I think this is what we're going to try and get at over the next 20 minutes or so. Guys, how much of this is about Google and some of those changes you're talking about? Rahul, how much is it about? What else is going on? We talked about this, loads on the program, haven't we, about investors and AI and we're going to, we're going to come to that because also others in the last few days have also seen their shares fall too. Lilly, why don't you have a first stab at that? How much of this is a Google problem before we come to the wider problems, do you think?

Speaker F: I think it is very much an industry wide problem. I mean we at this point have our hands on most of the AI, uh, tech company earnings, um, including hyperscalers like Alphabet. Um, and I think that the two metrics that I've been watching the most closely across the board is what's happening with free cash flow. Is it turning negative? If it had already turned negative, is this a second or third quarter where we're seeing that. And that is what happened with Google. We saw negative free cash flow of $9 billion in this quarter. That's only the second time they've reported negative free cash flow since they went public. But it's not just them. Um, I believe it was Metta that also is, is experiencing

Speaker D: negatives and we talked about it on the, on the podcast earlier this week.

Speaker E: Yeah, I mean look. Yeah,

Speaker F: and

Speaker E: sorry.

Speaker F: Oh, I was just going to also say long term debt, that's a huge metric that I've been watching as well. And with Alphabet we saw long term debt jumping 4, 80% to 125 billion. But it's not just them.

Speaker E: Look for me as well, I think that's a big part of this. But DC is also a company specific problem here. In search, 90% went to Google. Now they're in a completely different world. That whole advertising model is based on it ChatGPT. These other ones use AI bots. The model works on me. Will Lilly clicking on something, going to a link, clicking on another link and the ads come with that. And I think that is the biggest fear. It's going to be really badly affected by AI. Uh, we also on this program like to speak to people who have money invested in the market. So a short while ago we spoke to Gene Munster, managing partner at Deepwater Asset Manager. He was getting ready for the markets opening a long few days. He's had a long few days. So we asked him what was his day like. Yesterday,

Speaker G: the minute that Google reported that their search grew at 12% versus expectations of 15% my phone starts ringing, I start getting text messages and emails. And the first wa is from our investors and they want to understand what the comments from these big companies means for their investment. And I would probably put their mode as in more of the freak out type of category. It ends up being a pretty dynamic day. Whatever I had on the calendar is kind of pushed to today

Speaker D: disappears. Well, give us a perspective then. How much of this is a Google Alphabet problem? How much of it is uh, broader debt and a worry that the market's got about AI debt full stop problem, do you think?

Speaker G: So in the case of Google, the reason why it traded off by so much was a uh, view that their search business, which is just over half of their revenue and about 75% of how much money they make their profits, that business potentially could be in jeopardy because they miss those the expectations on search and second is the amount of capital to fund them is going to be much more than what we thought and how are we going to get that capital and what does that mean for cash flow over the next several years? So those are the two big topics that are causing the sell off.

Speaker E: Can I ask you just on the search question, you have more than half a trillion dollars worth of, uh, assets. Does it worry you when you look at a company like Alphabet, that we're not using Google so much? It's something we all grew up with, but now we're going elsewhere. That's going to affect the company, isn't it?

Speaker G: It will. And to answer your question is that if you want to know how an investor feels about something, just ask about their portfolio. And we sold our Google position about six months ago. And so we are worried about that

Speaker D: Gmonter taking time out of a pretty frantic week there are to speak to us, Lily, how much is it about that we're coming to the wider debt and everybody else at the moment. But how much is it also that investors are asking, what else do you do as a company? Where else do you make your money? If you're going to spend all this cash, where else do you make your cash?

Speaker F: I think it's a really important question that investors are asking and I would even reframe it a little bit. Are you cannibalizing your main business, which is what seems to be happening with Google? Um, you know, and you know, it's not just them. It's interesting that they're feeling it in this way. Certainly the news business is feeling that as well. When you take out links and um, people just get these conversational text responses, they don't need to click on any links. And so there you're cannibalizing your main bread and butter, which is ad revenue. Uh, it's not just Microsoft. I think of a company like Amazon too where we have seen AI spending soaring. the same time we're seeing slower growth in their online business. So I think maybe the message investors are sending to these companies is mind your main business as well. You know, if you want to get into AI, fabulous. But don't forget your core business and keep investing there. It's

Speaker E: interesting. Sundar Pichai, 2015, he took over this company and he has tried to re pivot it, hasn't he? You know, you look at the cloud business, revenue went up 102 that they're taking on Amazon in that area. He's even moving into the chips area as well. So when you hear him speak like just about everyone else, Lilly in Silicon Valley, you know, he says, we're not a search company anymore. We're basically an AI company that operates in many different areas. I suppose the big question is, will, does moving into those areas provide you with enough cash, one, for the AI revolution that we're in the middle of, and two, to replace the fact that that search is not growing as quickly as it used to?

Speaker D: Well, we're going to go hunting about those searches for financial firepower, uh, if you like, in the second half of the program. You're listening to Business Daily from the BBC World Service.

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Speaker D: where alongside Rahul Tanden and M me Will Bain, we're joined by our Silicon Valley correspondent Lilly Jamali to look at well really just what's been going on with global tech stocks. Actually full stop after we saw half a trillion dollars wiped off the stock market valuation of Google. But also Rahul the wider Nasdaq down again today to the tech focused Nasdaq and it's Amazon as Liddy was just saying, intel, the chip maker, intel wider worries that

Speaker E: look and it's the amount of money that's being spent here, isn't it? If you take the big four companies who are looking at this, you know, Amazon, Alphabet, Microsoft and um Matter as well, you know it's a huge amount of cash. They are spending $2.1 billion every single day Lily, on AI and that worries people.

Speaker F: And what's so interesting too is when you look at the panoply of companies, Microsoft is an outlier. You know why? Because they reported capital expenditures are going to be below what was originally forecast analysts expectations. So I think that's very interesting. We should also note with Microsoft they offered these voluntary buyouts to a wide swath of their workforce. 60,000 people uh, being offered that obviously you know the concern is if they don't take it now, will they get forced out with, you know, a, uh, less beneficial severance. But I think that capex issue is so important that you were really seeing investors being spooked by companies that just keep spending. And it's such a contrast from a, about a year, year and a half ago where you'd see these earnings reports come in, these massive capital expenditure numbers being reported. And it was like the bigger the number, the more the stock would be rewarded across the, across the board. And to really re

Speaker D: explain the kind of importance of that, we were talking about this in the meta podcast with Michelle when we. Rahul, that is the stuff that, like the reason these companies are the most valuable in the world and we have someone like Lilly out there covering them all the time, is because they live off innovation. And that spare money is the stuff that they do beyond the core business business to come up with the next great big idea. And the fear is that this is just squeezing out any chance to think about anything other than this. Well,

Speaker E: that is the big problem, isn't it? It is. Okay, we need big ideas, but how much are they going to cost? And Sundar Pichai, the man who runs Alphabet, he was speaking, wasn't he, to Faisal Islam, our economics, uh, editor on, um, Big Boss, a program that Will is heavily involved in. Let's have a listen to what he said.

Speaker A: Well, it's an extraordinary moment, even by Silicon Valley standards. And one way I think about it is in the next couple of years we'll end up building what we probably built in the past 10 to 20 years. And

Speaker G: uh, the obvious question is around the

Speaker I: whole of this country and the whole world right now is, is it a bubble

Speaker A: when we go through these investment cycles? Uh, you know, there are moments we overshoot, right, Collectively as an industry. We can look back at the Internet right now. There was clearly a lot of excess investment. But none of us would question whether the Internet was profound or did it drive a lot of impact. It's fundamentally changed how we work digitally. I expect AI to be the same. No company is going to be immune, including us, if you over invest, we'll have to work through that phase.

Speaker F: Uh, yes, every Silicon Valley correspondent's favorite question. Are we in an AI bubble?

Speaker D: How many times have you asked it recently, do you reckon?

Speaker E: Go on, let me answer it.

Speaker F: All the time. And it's not just the big companies. We're looking at the smaller companies that are further down, uh, the ladder, the AI ladder, if you will. What is that a bit of the issue here?

Speaker D: That if the big boys are soaking up A lot of uh, and um, we haven't really talked about. You touched on it Lily. A bit how they're financing some of that. Like it's not just making layoffs, it's not just asking their shareholders put more money in as we were talking about with Meta, but it's selling off these bonds, so selling off their debt. And Microsoft, when people saw their financial results earlier this week were like, oh, phew, as you were saying, they've got a bit more free cash flow for this and then suddenly the next day they're selling off in another enormous amount of debt, $25 billion in bonds. Again, people are going, goodness me, are there enough people to buy all this debt?

Speaker F: Yeah. Or selling equity, which Google is going to be doing for the first time in a long time. I think the long term debt issue is so key here as well. You know, I was looking at Meta's financials recently. Meta, uh, didn't even have a long term debt line on its balance sheet five years ago at this. Now every quarter it's growing by double digit percentages, somewhere on the order of $80 billion at this point, if I'm not mistaken, and one of you said earlier, Silicon Valley is a place of innovation. But the issue is so many of these companies are chasing the same thing they are. And so now they're in an arms race and they need to spend as much as they can to try and win it.

Speaker E: But here's the thing, look at matter. They're trying to, they're raising what, 80, 90 million. It was oversubscribed by four times. I think the problem's further down the line, isn't it?

Speaker D: I wanted that sense from Lilly actually. Are people panicking about that? I mean you see him, you're in the coffee shops with them, you chat to them kind of off the record. Are they sweating that? Where this next, you know, because it's a never ending race at this point, isn't it? As someone put it to me on the radio the other day, it's existential. You've got to stay in it. So you've got to keep finding these new routes of finance. Are people starting to worry about that?

Speaker F: My general view has been that it's very heads down, just do the job among the rank and file. Um, I think that this quarter may end up really changing that view. Uh, when you see a company like Microsoft saying we don't need 60,000 of you, that's stark. And I think when people see how their jobs and their own livelihoods can be affected by this, we saw at Meta, people really lashing out against this notion that they were training these AIs to take their jobs one day. And so Meta, uh, leadership became aware of that and really reverse their messaging. So I think that increasingly it is a concern because it's literally affecting their ability to make a living. In this industry. Where I live,

Speaker E: when anybody looks at a business, they look at how much cash you're making and how much cash you're spending. And if you're spending a lot more, then if you want to give that company money, it's going to cost them a lot more. And at some point you say, well, maybe I don't want to give it to you anymore. And look, it's not just companies looking for monies. We talk Will, don't we, Lily? The US debt, it's so high. There are, uh, governments looking for money. There's a limited pool, and there's a lot of people looking for that cash.

Speaker D: Yeah, it's a bit like a marathon being run at a sprint pace at the moment, isn't it? And who can keep up and who can find ways to help themselves stay in that race? We always like a bit of a conclusion. It'll be a truncated one. On a live version of the podcast today, Lily is our guest. Go first on this then. Is the crown slipping? Uh, uh, as the king ofsearch, is AI stealing search from Google a bit?

Speaker F: I think Google needs to take a look at its current business model. The fact that they might be hurting their main bread and butter business is a very real concern. And so I can imagine Sundar Pichai with his lieutenants going back to the drawing board and rethinking things.

Speaker E: Yeah, I think so. I think it'll take time. I think in different parts of the world are at different stages of where technology is. And here's the thing, Google, yes, People may move away from it. I'm moving away from it. Uh, we're probably all a lot of people listening to this, but they have had us for a long period of time. Gemini's doing well. You know, after chat, GPT. If you look at the numbers, it's number two at the moment. So as we move into this new area, I wouldn't rule out Alphabet. Yeah, I think the bigger problem is as we move to more bots and we have, you know, AI agents coming in that Meta have launched, the question is, how do you monetize that? Are, uh, you going to monetize it in the same way that it has been monetized before

Speaker D: and Lily, how do these people tend to respond to this? What do you think they'll be chatting about in those boardrooms around you? About how to step back.

Speaker F: They love criticism. Um, as it happens. No, I'm joking, of course. No, I thought you were going to say they were

Speaker D: like sports people. They use it as fuel.

Speaker F: Well, yeah, I think that the conversation is going to, is at an inflection point right now. Um, there is real concern about the financials of what these companies are doing and I think Google front and center there.

Speaker D: Fascinating. Well, that is, I mean, we've already talked about it a lot in the podcast. It's a good time, given we've launched a relatively new podcast feed, to have a good rich seam Rahul to chat about. I

Speaker E: think it could be a theme for quite a period of time of what is going on here? It is the big business question. One of the big business questions of our time is changing our lives, like everything. Who's going to pay for it? That's what I say to my children.

Speaker D: Lily, I'm glad it's keeping you busy as well.

Speaker F: Indeed. Never a dull moment here in Silicon Valley. Great to be with you both.

Speaker D: Lily Jamali there. Our uh, Silicon Valley correspondent, Ryle Tander with me, Will Bain. Remember, if you don't subscribe already, please do to as I say, the relatively new power players feed on Business daily every week. Rahul, Michelle and me m in your ears from right around the world, picking up not just the biggest corporate business stories, but also the big economic ones too. We've looked at the likes of what's going on at Nike VW here in Europe, the car firm, um, but also issues around who's going to pay for those AI data centers and uh, whether people like Zora Mandani have got a new kind of way of doing economics. So if you don't subscribe already, like I say, please do so. And while you're there, five star rating and a little review, perhaps even something you'd like to hear us chat about. Massively helps other people find us, uh, out and about there. But thanks so much for listening.

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