Google shares tumble after AI search revenue lags behind traditional web queries

Alphabet shares fell nearly 12 percent on Wednesday following the release of its third-quarter financial results, marking one of the largest post-earnings drops in the company's history. The decline occurred despite the tech giant reporting total revenue of almost $128 billion for the July through September period. The market reaction was driven by a specific admission from company leadership: the new artificial intelligence search platform is currently earning less money per user query than the traditional web search that has powered the business for decades.

The financial report shows a widening gap between top-line growth and bottom-line profit. While revenue rose 25 percent year over year, net income dropped by nearly $9 billion compared to the same period last year. The company earned more than $26 billion in net income this quarter, but the figure fell short of analyst expectations. Investors had projected earnings per share of $3.02, but Alphabet reported $2.12. The stock was down about 13 percent earlier in the day before settling at a lower loss.

Philipp Schindler, the company's chief business officer, detailed the performance on the earnings call. He noted that search volume grew by 12 percent in the third quarter. However, this growth rate slowed sharply compared to the previous two quarters, when search volume increased by 17 percent in the second quarter and 19 percent in the first quarter of 2025. Schindler explained that each query made through the new AI Mode generates less revenue than a similar standard web search. This is because AI answers contain fewer advertisements, and those ads cost less to run.

The shift toward AI search represents a major strategic pivot for Google. The company has integrated generative technology into products ranging from Gmail to Android. It is now shifting its core search function to a platform powered by Gemini models. Schindler indicated that this transition is diluting the average revenue per query. As consumers increasingly use AI chatbots to find answers, the traditional ad-heavy search results are being replaced by concise AI responses that do not support as many ad placements.

Cloud products provided a partial bright spot in the report. The division crossed the $30 billion revenue mark, a figure approximately $1 billion higher than analyst guesses. Despite this beat, the Cloud results were not enough to offset the concerns surrounding the core search business. The market appears to be pricing in the risk that the higher spending on AI infrastructure will not yield immediate proportional returns in search revenue.

Google expects to spend even more on AI infrastructure in the coming year. The company continues to invest heavily in the technology that is reshaping its primary product. For now, the financial data shows a company with massive scale but a slowing growth trajectory in its most profitable area. The quarterly results confirm that the transition from keyword-based search to AI-driven answers is altering the economic model of the internet's largest search engine.