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

The distinction to be made is they are losing billions in value, not necessarily billions in cash. I’m the case of google, their stock value decreased after the AI error in a demo because the poor optics likely convinced people to sell, dropping the price. The value of the company is calculated by multiplying the price of a share times the number of existing shares. For google, with ~11 billion shares, the price drop of ~$9/share at the time of the demo results in your $100b dollar loss of value. The company doesn’t have to pay this money or find it by cutting costs through layoffs, but it does impede their ability to raise money by selling more stock and potentially their ability to recruit employees who would have some stock-based form of compensation.