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

There is no money that just disappears… it’s a drop in market cap value of the company based on the decline in stock share price.

All it means is that investors are willing to pay less to buy shares of the company, so any investor choosing to sell will get less today than they would have yesterday. But those who hold don’t lose actual money unless they sell.

The drop doesn’t really affect actual company financials at all, but share prices are treated as a report card of sorts and a company that sees a drop in share price might look to cut costs to preserve profits and thus prop up share price.