Google admits AI search makes less money, but it’s fixing that with more ads
Alphabet reported stronger third-quarter revenue, but its shares fell by nearly 12 per cent after results fell short of analysts’ expectations and raised concerns about the cost and returns of its AI strategy. Google said AI Mode searches currently generate less revenue than standard web searches, even as it plans to expand advertising within the feature.
Revenue rose 25 per cent year on year to almost $128 billion, while net income was more than $26 billion, nearly $9 billion lower than a year earlier. Search volume grew 12 per cent, down from 17 per cent in the previous quarter, and search revenue was flat. Alphabet reported $9.06 billion in negative cash flow and expects capital spending of $195 billion to $205 billion in 2026, with more than $300 billion targeted for 2027; its cloud revenue exceeded $30 billion.
In short
- Alphabet’s shares dropped nearly 12 per cent after its earnings report.
- Google says AI Mode searches earn less than standard web searches.
- Alphabet plans more than $300 billion in spending in 2027.
Steelman: both sides, in good faith
The strongest fair case each way — we don't pick a winner.
The case for
Expanding ads in AI Mode could help Google fund costly AI infrastructure and preserve a free service while adapting its business to changing search habits. If the ads are relevant and clearly distinguished, they may support continued investment without substantially reducing the usefulness of search.
The case against
Putting more ads into AI Mode may undermine the concise, helpful experience that makes AI search attractive, especially if commercial placement shapes answers or crowds out useful information. Given the scale of planned spending and weaker current returns, expansion could also expose users and investors to greater risk before the model’s value is clear.
Explained simply
Alphabet is Google’s parent company, and search advertising is one of its main sources of income. In a standard search, people see links to websites alongside adverts; Google earns money when advertisers pay to reach those users.
Google is adding AI features that answer questions directly, including AI Mode, which can reduce the need to click through to websites. The company says searches in AI Mode currently bring in less advertising revenue than standard searches, and it plans to add more adverts as the feature grows.
Alphabet is also investing heavily in data centres and other infrastructure to develop and run AI services. These investments are costly, while their eventual returns are uncertain; Google’s cloud computing business is another growing source of revenue.
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