Google is paying a higher price for its bet on AI than even Alphabet's $51.4 billion in Q3 capital expenditures suggest. The biz appears to have traded its high-performing search advertising business for the mediocre monetization of AI Overviews and AI Mode, a misstep that contributed to investor concerns as Alphabet lost roughly $500 billion in market value despite management's attempts to reassure Wall Street.

Google's year-over-year search revenue growth slowed from 17 percent in Q2 to 12 percent in Q3. It's still headed in the right direction, but at a slower rate. During Alphabet's conference call for investors, Douglas Anmuth from JPMorgan Chase & Co asked whether that's because Google is showing fewer ads in AI Overviews and AI Mode than it shows in its traditional search results. Chief business officer Philipp Schindler cited several reasons for that: foreign exchange rates, Europe's elimination of its customs-duty exemption, and "the lower monetization we were seeing in AI Mode."

To compensate, Google said it is expanding the distribution of AI Overview ads and adding multiturn ads in the US for AI Mode queries. But some Google Ads customers appear to be more concerned about quality than quantity. In a social media post, Max Anderson, CEO of OnlyFinder, complained that Google has responded to declining search volumes by attempting to manufacture revenue growth through "short-sighted, highly extractive, customer-hostile tactics," such as charging advertisers more for lower-quality clicks, including clicks on search terms they had not agreed to target.

Eric Seufert, an analyst with Mobile Dev Memo, dismissed the doomsayers in a blog post. "It’s tempting to look at the successive deceleration in Search revenue growth from Q1 2026 as a response to pressure from other chatbots and to assume that Search query volume is migrating elsewhere," he wrote.

"But the earnings release notes that the 'year-over-year Search query growth rate [was] the highest it has been in the last five years' in Q3, so it's clear that Search usage isn't declining." So people are still searching, and the business is still growing, but less convincingly, thanks to the lower monetization of AI Overviews and AI Mode. And Google's answer involves more ads in AI interactions.

Nate Elliott, principal analyst for AI at Emarketer, told The in an email that AI represents a double-edged sword for Google's ad business. "On the one hand, Google owns the thing that people use AI for most: search," Elliott wrote. "Our surveys say that by far the top reason people use AI is to look for facts and information. Luckily for Google, people also tell us they haven't stopped using search engines – they've simply added AI as a new behavior on top of search. That means people spend more time than ever looking for information, and most of those people don't even think twice before doing their searches on Google.

If Google figures out how to effectively monetize those users, that's great news for them." But, said Elliott, people may find tools they like better than Google Search as they become accustomed to AI-based discovery. "If ChatGPT or Claude or Muse is better at helping them find what they're looking for, people's search habits might change for the first time in a generation," he said. "That's potentially catastrophic for Google's ad business. The same is true if they maintain their market share but simply can't figure out how to make money from this new kind of discovery. "The problem is, Google isn't giving us very much information about what the specific impact is of AI on their business right now, so everyone's reading into the tiny scraps of information they are releasing."

Elliott said it's remarkable that Google has managed to keep the largest and most mature digital ad business growing at a double-digit rate every quarter in recent years.

"But it appears that most folks disagree, and instead are concerned that the advertising business 'only' grew by 10 percent," he said. ®