Hint: It starts with an ‘A’ and ends with an ‘I.’
Credit: Omer Taha Cetin/Anadolu
Tech stocks are taking a big hit on the stock market today, and they really only have themselves to blame.
Just look at Google and Reddit’s plummeting stocks. On Thursday, Google stock experienced its largest single-day drop ever, and Reddit is on track to have its worst-ever day on Friday. Other tech stocks are also down Friday. As of this writing, Intel is down 30 percent. NVIDIA is down almost 5 percent.
So, what’s going on? The answer to this shouldn’t surprise anyone: It’s AI.
On a Q3 earnings call earlier this week, Google reported strong revenue growth, although weaker than expectations. However, in an earnings filing on Thursday, Google revealed that the company has substantially more exposure to AI risk than some investors realized, according to a Bloomberg report. For one, Google has now disclosed that in addition to its $1 trillion in future purchase commitments, it faces an additional $98 billion in possible future purchase commitments.
These commitments consist mainly of AI data centers and related computing power and hardware, Bloomberg reports. Basically, the company has a lot riding on the AI boom not going bust.
That’s not the only concern either. Google’s AI features are hurting one of the company’s biggest moneymakers, Google Search advertising revenue.
According to Google’s chief business officer Philipp Schindler, fewer users are clicking on Google ads in search because of features like AI mode. In fact, even though Google is currently experiencing more search queries than it has in the past five years, Google Search revenue growth is slowing due to these AI tools.
As click-through rates for websites appearing in Google Search decline, the effects are felt further down the line by websites that rely on Google Search traffic, as many websites do (including Mashable). And this is why Reddit’s stock is dropping as well.
Last year, Reddit shared that a whopping 50 percent of its traffic comes from Google. As many Google users have noticed over the years, Reddit threads have been ranking quite highly on Google Search results pages for a variety of queries.
However, when Reddit released its Q3 earnings on Thursday, the company was singing a different tune about Google referral traffic.
“Our search referral traffic was down meaningfully in Q3, with the decline accelerating later in the quarter,” Reddit said in a letter to shareholders, revealing that search traffic has been dropping by more than 1 million referrals per week.
In an interview with CNBC, Reddit CEO Steve Huffman outright blamed Google’s AI Overviews for the drop in traffic.
“I think fundamentally that relationship between Google and the rest of the internet is evolving, and so for us, this means a continued focus on our core users that come to Reddit directly,” Huffman said
In addition to Reddit’s woes with Google’s AI features, the company announced it would soon require users to create accounts and log in to view content. This change is meant to combat AI scrapers, according to the company. However, this is undoubtedly going to result in further drops in traffic, as Elon Musk discovered when he briefly rolled out a similar login requirement on X, then known as Twitter, back in June 2023.
The tech industry continues to push AI into every facet of its multitude of products and services. It turns out that has had significant negative impacts on their successful existing businesses.
