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
Stock price is just based on what people _think_ the present value of all future earnings of the company are. Since future earnings are just guesses (based on data, but guesses none the less) if one of the key inputs to how that guess is made changes, people will change what they feel each share of stock is worth.
The money doesn’t “go” anywhere because it never existed in the first place. It was just a valuation, which isn’t the same thing as actual cash. It would be like if you suddenly found a missing Van Gogh in your attic – you are suddenly “richer” but until you actually _sell_ it, that wealth increase is just on paper. If that painting burns up in a fire, you “lose” all of that wealth, but again the actual cash you have doesn’t change one penny.
How companies react will vary depending on what the news is. Shareholders – who are the owners of the company – want the stock price high, so management will usually make changes to try and show the market that their revenues will go back up in the future.
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