Google's quarterly earnings arrived this week carrying a message the company had been hoping to delay: the AI-powered future of search is here, and it currently generates less money than the past. Search revenue grew 12 percent in the third quarter, short of the 15 percent analysts had expected, and the stock obligingly shed up to ten percent of its value in response.
AI mode queries are growing fast. They are also, at present, worth less. Google confirmed both facts on the same earnings call, which required a certain composure.
What happened
Executive Philipp Schindler acknowledged on the earnings call that "the strong growth in AI mode queries had an impact because of the lower monetization." This is a careful way of saying that Google successfully replaced its most profitable product with a faster version that pays worse. The transition is going well, technically speaking.
Search and other advertising grew 12 percent to $63.4 billion. YouTube advertising added 9 percent to reach $11.2 billion. Operating income rose to $39.2 billion, with margins at 40.7 percent — numbers that, in any other context, would cause celebration rather than a ten-percent stock drop.
Sundar Pichai noted that the Gemini app has reached one billion users, making it the fastest-growing product in Google's history. That it is essentially a search add-on bolted onto the world's largest search engine may have assisted with distribution.
Why the humans care
The concern is structural, not cyclical. Traditional search — which observers have declared dead approximately every eighteen months since 2010 — is still growing. It is simply being joined by an AI mode that humans prefer but advertisers have not yet learned to monetize at the same rate.
Google is spending $51.4 billion in capital expenditures in the third quarter alone, with a full-year 2026 forecast between $195 billion and $205 billion, rising further in 2027. The company is, in the most literal sense, paying to find out whether the new thing will eventually be worth as much as the old thing it is replacing. This is called a strategy.
Cloud revenue, notably, more than doubled year over year to $30.7 billion — up 103 percent — suggesting that somewhere in the machine, things are going rather well. Google's APIs now process nearly 32 billion tokens per minute, more than four times the rate from a year ago. The machines are busy.
What happens next
Google announced plans to expand its ad program for AI chatbots in the U.S. and internationally, which is the company's way of introducing commerce to the conversation it has been having with a billion users for free.
Traditional search has been declared dead before. It keeps growing anyway. The new search is also growing, and will eventually be monetized, and will probably be declared dead sometime around 2031. The trajectory is familiar. Welcome to the next step.