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

Nothing happens in the moment, but a company has a safety net if they have a high stock price. And conversely, if a company’s stock price is low, they could be in danger.

Because, if a company has a high stock price, and they do something that requires a cash infusion, like expanding to a new office, they can release shares to be traded, at that high price. And if the company has a good idea for the expansion, it can result in more profit than just keeping the stock.

Conversely, if a company has a low stock price, and they need a cash infusion, there are fewer things they can do with it. So even if they have good ideas to turn the company around, they might not get the required capital to put into that turnaround.