Alphabet shares fall as AI Mode searches bring in less advertising revenue
Alphabet shares fell by almost 10 per cent after the company said AI Mode searches currently generate less advertising revenue than conventional Google searches. The gap matters because Google is investing heavily in AI infrastructure, while its search business remains a major source of income.
Alphabet’s search revenue rose 12 per cent year on year to $63.25 billion in the third quarter, while net income fell to $26.17 billion from $35 billion a year earlier. The company spent $51.4 billion on infrastructure and has begun showing ads alongside AI Mode searches worldwide, after testing them in the US. Google also faces limited Cloud capacity, and plans to spend significantly more in 2027 despite keeping its 2026 capital spending forecast at $195 billion to $205 billion.
In short
- Alphabet says AI Mode searches earn less from ads than traditional searches.
- Search revenue rose 12 per cent to $63.25 billion.
- Google plans significantly higher capital spending in 2027.
Steelman: both sides, in good faith
The strongest fair case each way — we don't pick a winner.
The case for
Alphabet’s investment in AI could help Google remain competitive as search habits change and create new products and revenue streams over time. Lower advertising revenue from AI Mode today may be a transitional cost, while strong search growth and substantial infrastructure spending could support future returns.
The case against
The revenue gap suggests AI Mode may weaken the economics of Google’s core search business if users shift to it from conventional searches. With infrastructure spending already high and further investment planned, investors can reasonably worry that AI growth may not generate enough income to offset those costs and any lost advertising revenue.
Explained simply
Alphabet is the parent company of Google, whose search engine earns much of its money by showing adverts alongside results. AI Mode is a Google search feature that uses artificial intelligence to provide more conversational answers, and adverts can appear with those responses.
The company is investing heavily in computing infrastructure to develop and run AI services, while also expanding its cloud business. How well AI Mode attracts advertising income matters to Alphabet because search remains a major source of revenue and the company is planning further investment in the years ahead.
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Originally published by The Register as “Google struggling to make AI Mode searches pay”.