Alphabet, Google’s parent company, has acknowledged that its rapidly growing artificial intelligence-powered search experience is generating less advertising revenue per query than traditional search, raising fresh questions about the profitability of its AI transition.
The admission came as Alphabet reported third-quarter 2026 revenue of $127.6 billion, up 25% year-on-year, but its search advertising business grew more slowly than in previous quarters. The earnings results triggered a sharp sell-off in the company’s shares, with reports putting the decline at between 8% and 10% following the announcement.
Google Search and other advertising revenue increased 12% year-on-year to $63.35 billion in the quarter ended September 30, 2026. That compared with growth of 17% in the second quarter and 19% in the first quarter, highlighting a slowdown despite a sharp increase in search activity.
Chief Business Officer Philipp Schindler told investors that the growing use of AI Mode was contributing to the gap between search activity and advertising revenue because the feature currently monetises at a lower rate than traditional search.
The company is now expanding advertising formats within its AI-powered search products, including AI Overviews and AI Mode, as it seeks to convert growing user engagement into sustainable revenue growth.
According to TechCrunch, the expansion was announced during Alphabet’s October 28 earnings call, when management outlined plans to bring AI Mode advertising to additional international markets and introduce ads in follow-up queries in the United States.
Google Search Activity Hits Five-year High
Despite the slowdown in advertising growth, Alphabet Chief Executive Officer Sundar Pichai said Google’s year-on-year search query growth reached its highest level in five years.
The company attributed the increase partly to its AI investments, which are changing how users seek information, compare products and explore complex topics.
AI Mode allows users to ask more elaborate questions and continue conversations through follow-up prompts, rather than relying solely on conventional keyword searches and lists of links.
Pichai said queries in AI Mode are, on average, three times longer than traditional search queries. One in five AI Mode searches globally involves voice, images or documents, while Google has surpassed 50 billion visual searches per month.
These developments indicate that Google’s search business is expanding beyond the traditional text-based model. However, the financial benefits are not yet matching the growth in engagement.
The distinction is important because Google’s established search advertising business has historically connected users with commercial websites through sponsored links displayed alongside search results.
In AI Mode, a user may receive a consolidated answer generated by artificial intelligence instead of visiting multiple websites. Although this can improve the search experience, it also changes where and how advertisements can appear.
Google must therefore develop advertising formats that fit naturally into conversational answers without undermining the usefulness of the product or users’ trust.
Why AI Mode is Monetising Less Effectively
Schindler identified lower monetisation in AI Mode as one of the factors behind the deceleration in search advertising growth. He also cited foreign-exchange movements and developments in specific advertising categories.
Currency effects were the largest contributor to the slowdown relative to the second quarter, while retail advertising faced pressure from regulatory changes affecting some Asia-Pacific advertisers. Media and entertainment spending also normalised after an unusually strong second quarter associated with the FIFA World Cup.
The earnings call did not disclose the precise revenue difference between a conventional search query and an AI Mode query, or quantify how much the lower monetisation rate reduced quarterly advertising revenue.
