Google’s Search revenue growth slowed to 12 percent year over year in the third quarter, down from roughly 17 percent in the previous quarter, according to an earnings report by Google's parent company, Alphabet. While search queries are growing at their fastest rate in five years, the company is struggling to translate AI activity into faster business growth. Growth in paid clicks—the ads that generate revenue for Google—also slowed from 13 percent to 8 percent.
Alphabet shares have fallen about 14 percent since the company reported earnings last week. Investors are questioning the costs and returns of the company’s AI ambitions, especially as Google plans to spend about $200 billion this year on infrastructure, largely to support AI.
Chief Business Officer Philipp Schindler stated that currency effects were the biggest driver of the revenue-growth slowdown, alongside changes in spending by advertisers in particular industries. However, he noted that Google’s AI makeover also contributed to the slowdown: AI Mode queries were growing strongly but monetizing at a lower rate than traditional searches. Schindler maintained that Google feels good about its trajectory and that its “ad experiments have shown promising results.”
Nate Elliott, an eMarketer principal analyst covering AI and advertising, told The Verge that this is the "first major disruption that Google is facing to its core business in decades." He noted that AI is changing how people find information and whether they click on the ads that fund Google’s business.
Andy Taylor, vice president of research at digital advertising agency Tinuiti, observed that while AI Overviews add generated summaries to search results and AI Mode turns searching into a conversation, users searching for specific items like Nikes can still get familiar shopping listings and text ads. Google argues that AI is expanding the business; Schindler says most AI Mode queries are “incremental”—additional questions rather than replacements for existing searches. Many are also “upper-funnel,” meaning people are researching potential purchases before they know what they want.
Google is currently expanding ads in AI Overviews and AI Mode internationally and across multiple turns of US AI Mode conversations. The company has also floated bringing ads to its standalone Gemini app, saying formats developed for AI Mode could carry over, but it has not announced when.
Tinuiti reported that its same-store advertisers increased their Google paid search spending 14 percent year over year in the third quarter while maintaining their return-on-ad-spend targets. However, Taylor said advertisers cannot isolate how Google’s AI ads are doing because Google does not let them separately target that inventory or break out its performance. Taylor suspects it’s mostly the former, meaning AI ad traffic is still too small to noticeably affect the results.
Elliott warned that if people are clicking through less often, it is a challenge that Google needs to figure out. He noted that the promise of conversational advertising is not a "slam dunk" that it’s going to turn into more effective advertising. An October working paper found that US visits from ChatGPT ads generated 64 percent less revenue for retailers per session than visits from Google Search ads: $0.89 versus $2.45. Taylor cautioned that those comparisons depend on what people are searching for, as a higher sales return could reflect a difference in purchase intent rather than more effective ads.
Elliott concluded that Google "absolutely do not have it all figured out," noting that finding effective ad formats can take years.
