Alphabet Inc. (NASDAQ:GOOG) (NASDAQ:GOOGL) is seeing record growth in Google Search queries, but weaker monetization in AI-powered search experiences is weighing on revenue growth.
Google Search Revenue Growth Slows Despite Rising Queries
During Alphabet’s third-quarter earnings call Wednesday, J.P. Morgan analyst Doug Anmuth asked why Search revenue growth slowed even as queries rose at their fastest pace in five years.
Philipp Schindler, Google’s chief business officer, said Search revenue rose 12% year over year to $63 billion during the quarter.
Foreign exchange was the biggest factor behind the slowdown in growth compared with the second quarter, Schindler said.
He also cited retail advertising challenges linked to the EU’s elimination of its de minimis exemption and normalized media and entertainment spending following an unusually strong second quarter driven by the FIFA Club World Cup.
However, AI-powered search experiences also played a role. “The strong growth in AI Overviews had an impact because of the lower monetization we were seeing in AI Mode,” Schindler said.
Earlier on the call, Alphabet CEO Sundar Pichai said Google’s AI investments are boosting Search usage and overall query growth, including commercial searches.
“In fact, our year over year query growth rate is the highest it’s been in the last five years,” Pichai stated.
Google Expands Ads Across AI Overviews and AI Mode
Google is working to improve advertising revenue from its AI search products as users increasingly turn to AI-generated answers.
Schindler said advertising experiments had produced promising results, with Google expanding ads in AI Overviews and AI Mode to more users and queries.
The tech giant is also extending these efforts into international markets and testing multi-turn ads in the U.S., which could integrate advertising into longer, conversational search experiences.
“To be clear, we feel very good about our trajectory here,” Schindler said.
Sundar Pichai Predicts Google’s ‘Golden Age of Productivity’
Separately, Pichai said increasingly capable AI models could significantly improve Google’s internal productivity and accelerate product development.
He highlighted improvements in software engineering, including higher-quality code submissions and fewer rollbacks, along with opportunities to tackle bigger problems and improve consumer experiences.
Pichai said Google was rolling out a newer internal AI model, Carbon, which he described as a significant improvement over Argon.
As access expands and more computing resources become available, Pichai said he expects 2027 to be a “golden year” for productivity and innovation at Google.
Alphabet Misses Q3 Revenue and Earnings Estimates
Alphabet reported third-quarter revenue of about $127.58 billion, below analysts’ estimates of $128.20 billion. The company reported earnings of $2.12 per share, compared with estimates of $3.02.
Looking ahead, Alphabet expects foreign exchange headwinds to weigh more heavily on fourth-quarter revenue than in the previous quarter, primarily affecting Google Search and YouTube advertising.
The company also expects tougher year-over-year comparisons as it faces the impact of Search’s accelerated growth in the same quarter last year.
Price Action: Alphabet Class A shares closed at $324.89 on Wednesday, while Class C shares ended at $321.89. In after-hours trading, Class A fell 9.97% to $292.50, while Class C dropped 9.75% to $290.52, according to Benzinga Pro.
According to Benzinga Edge Stock Rankings, GOOGL shows weak price trends across the short, medium and long term, while maintaining a moderate value score.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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