How can a publicly traded company lose billions of dollars in one day and what happens with that money?

Question

E.g., Google lost $100b after its AI made a factual error in a demo.

Or when Musk lost $200b.

What happens with that loss? Do they need to do layoffs specifically because of that? Close massive projects? How can a company continue to even exist after that kind of financial loss?

Thanks!

In: 5

Answer 1

Imagine that you found a shiny shell on a beach one day, took it home, and showed all your friends. They agreed that it was super neat, and actually offered you $5 to buy it.

But then, somebody noticed a chip in the shell. Now it is not that interesting, and you are only being offered $1 for the shell.

Your shell just lost $4 of value in one minute. What happened to that $4? Nothing; it is just a change to the price at which the shell happens to be traded. You can still do the same thing with the shell that you did before – you can watch as it glistens in the sun, or put it to your ear and listen to the sea. The only thing you can’t do with it is sell it to someone else for $5.