Alphabet lost just over $500 billion in market value on Thursday after executives tied a Search slowdown to lower-monetization AI Mode search ads. Search and other revenue grew 12% to roughly $63 billion in the third quarter, down from 19% growth in the first quarter, even as queries rose at the fastest pace in five years and the stock hit a six-month low.
Key Takeaways
- Alphabet lost over $500 billion as shares fell more than 12%.
- Search revenue grew 12% in Q3, down from 19% in Q1.
- Google is scaling AI Mode ads to 10 countries and US multiturn ads.
- Cloud revenue jumped 103% while AI answers still monetize less.
Search Ad Growth Slows as Queries Move
Alphabet’s total revenue rose 25% to $127.6 billion for the quarter ended September, BBC News reported. The surprise was advertising. CNBC reported search and other revenue below estimates for a second straight quarter, with growth sliding from 19% to 17% to 12%.
Chief Business Officer Philipp Schindler said AI Mode was eating into ads beside traditional results. CNET reported he linked the slowdown to queries moving into AI Overviews and AI Mode, formats with “lower monetization.” Executives called foreign exchange the biggest factor and said the currency impact would be even greater in the fourth quarter.
Query growth moved the other way. CEO Sundar Pichai said Search queries grew at their fastest year-over-year rate in five years, without giving the rate. AI Mode queries are three times longer on average than traditional searches, one in five AI Mode searches involves voice, images or documents, and visual searches have surpassed 50 billion a month.
| Quarter | Search revenue growth |
|---|---|
| First quarter | 19% |
| Second quarter | 17% |
| Third quarter | 12%, roughly $63 billion |
The currency explanation did not hold the stock. BBC News said shares fell more than 12%, cutting value from $3.97 trillion to $3.46 trillion. CNBC put the drop at about 13%, the steepest on record, with negative free cash flow of $9 billion versus $5.9 billion in the second quarter, the first such deficit since Alphabet went public.
Google Scales AI Mode Search Ads Globally
Google is answering the gap by selling inside the AI answers. Schindler told investors the monetization footprint is going global for the first time.
We are now scaling high-quality ads within AI overviews in AI mode to more users and queries. This includes taking our monetization footprint global for the first time. Today, we’re announcing the expansion of ads in AI mode into international markets alongside multi-turn ads and AI mode in the U.S.
CNET reported ads in AI Mode are scaling to 10 new countries, including Australia, Canada, India, Kenya and Singapore, with Brazil, Mexico and the UK later this year. In the US, multiturn ads can appear in follow-up queries when a conversation has commercial relevance, and sometimes on the opening query. Google said an ad may not run if purchase intent is absent.
Schindler said click-through rates for sponsored product listings in AI Mode are already comparable to those for organic listings. The company’s user research also indicates that people find the ads relevant. Gemini models helped advertisers generate more than 1.5 billion campaign assets in the quarter, up more than sevenfold from a year earlier.
- Ten countries get AI Mode ads now; Brazil, Mexico and the UK follow.
- US multiturn ads can run when a follow-up shows commercial intent.
- Sponsored listing click-through is comparable to organic results, Schindler said.
Cloud Growth Funds the AI Build
Cloud is where Alphabet’s AI spend is showing up in revenue. TechCrunch reported Google Cloud revenue of $30.7 billion, up 103%, against Google Services revenue of $96.3 billion, up 11%. CNBC described a cloud backlog of roughly $560 billion, with just more than half expected to be recognized over the next 24 months.
The company kept 2026 capital expenditure at $195 billion to $205 billion and said spending will rise significantly in 2027. UBS analysts wrote that the results are “going to bring Search cannibalization fears right back to the forefront.” For advertisers, the tension is record query growth beside a thinner yield on the queries that moved into AI.
What a Thinner Yield Means for Buyers
Google still accounts for nearly 90% of the global search engine market, CNET noted. Lily Ray, founder of Algorythmic, told CNET organic clicks get harder as ads fill AI answers. “Like many things in Google Search, it means that if you’re not participating in Google Ads, it’s going to be harder and harder to get that traffic organically,” she said.
CNET also reported AI Overviews on nearly half of queries and a 61% drop in raw traffic to other pages. Kim Scott, who formerly led Google’s advertising business, told the BBC the company would “rather eat its own lunch than allow someone else to eat their lunch.”
Analysis: buyers should treat the AI answer as media, not a lab test. OpenAI has turned on ChatGPT ads creative enhancements by default, so a rival entry point already sells ads. Schindler said “Overall, AI is accelerating our ads development and drives the majority of our product launches.” Briefs written only for classic blue links will miss sponsored modules inside longer, multimodal queries.
