Alphabet Shares Fall as AI Search Shift Casts Doubt on Ad Revenue

Wall Street is watching a potential turning point in Google’s core advertising business as artificial intelligence reshapes how people search and how those searches are monetized. Following Alphabet’s third-quarter earnings report on Wednesday, shares of Google’s parent company fell nearly 10% in after-hours trading.

Revenue for the company’s services segment, which is driven largely by advertising, reached $96.3 billion for the quarter—roughly $2.2 billion below the $98.5 billion analysts had expected, according to the Wall Street Journal.

The selloff reflects growing caution among investors about a business line that has long powered Alphabet’s growth. With AI chatbots increasingly handling tasks once reserved for traditional search, questions are mounting about whether the advertising slowdown signals a broader shift in user behavior.

“Given the abrupt deceleration in digital advertising revenue, investors should be more cautious as that trend may continue going forward,” said Gil Luria, head of technology research at D.A. Davidson, in an interview with CNBC. “The burden of proof is now on Google to show it is not facing a permanent decline as more people turn to AI chat instead of search.”

Analysts are debating whether the miss marks the start of a lasting change in how internet users behave. “The world of search is shifting because so many people are now doing through chatbots the things they would traditionally do through Google,” said Bob O’Donnell, founder of TECHnalysis Research. “We are beginning to see changes in habits. It will take time for the full impact to surface, but when it does, it could be significant.”

During Wednesday’s earnings call, analysts pressed executives on how advertising would fit into AI-driven queries compared with conventional web searches. Doug Anmuth, head of internet equity research at JPMorgan, noted, “There was obviously some deceleration in search growth. Can you help us understand the disconnect? Is it simply that fewer ads are appearing in AI overviews and AI mode, and that this is now a larger share of overall queries?”

Google executives acknowledged the dip and said they are running experiments to improve results. Philipp Schindler, Google’s chief business officer, stated, “The strong growth in AI mode queries had an impact because of the lower monetization we are seeing in AI mode. To be clear, we feel very good about our trajectory here. Our ad experiments have shown promising results, and we are now scaling ads within AI mode to more users and more queries.”

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