Google looks likely to take a shower on its $1bn investment in AOL, as documents filed with the US Securities and Exchange Committee say that investment is "impaired".

Google paid $1bn for a 5 per cent stake in AOL in 2005 but now concedes that its value has dropped substantially. But Google is still optimistic that the wilting web giant may recover. "We do not believe that such impairment is other than temporary,” noted Google in the report.

Nevertheless, Google may well have to write down that investment in the near future. . “There can be no assurance that impairment charges will not be required in the future,” it said.

Originally, Google invested in AOL to guard against the possibility of loosing one of its largest advertising partners to Microsoft.

“We expect that Microsoft will increasingly use its financial and engineering resources to compete with us,” Google noted in its 10-Q filing. “[Microsoft] can use [its] experience and resources against us in a variety of competitive ways, including by making acquisitions, investing more aggressively in research and development and competing more aggressively for advertisers and web sites.”