Google parent Alphabet reported a strong rise in revenue for the third quarter of 2026, but the company’s stock price dropped sharply as investors confronted slowing search revenue growth and lower monetization rates inside its new AI-powered search features.
Alphabet Revenue Rises 25 Percent as Search Growth Slows
Alphabet took in almost $128 billion in Q3 2026, earning more than $26 billion in net income. Net income was almost $9 billion lower than the $35 billion recorded in the same period last year, when revenue sat at $102.35 billion, The Register reported. While revenue was up 25 percent year over year, Google reported earnings per share of $2.12, falling short of the consensus projection of $3.02 ahead of Wednesday.
Alphabet shares fell about 14 percent since the earnings report, driven by investor questions over the costs and returns of the company’s heavy infrastructure spending. Chief Business Officer Philipp Schindler addressed the financial results during the company’s earnings call, noting that currency effects and shifting advertiser spending contributed to the slowdown alongside Google’s ongoing AI makeover.
Search queries grew at their fastest rate in five years, fueled in part by users adopting “AI Mode,” Google’s latest LLM-powered search system. Google’s Search revenue growth slowed to 12 percent year over year in the third quarter to reach $63.25 billion, down from roughly 17 percent in the previous quarter and 19 percent in the first quarter. Growth in paid clicks slowed from 13 percent to 8 percent.
AI Mode Generates Lower Returns Than Traditional Search
Schindler explained that AI Mode queries monetize at a lower rate than traditional web searches, featuring fewer ads that cost less to run. Nate Elliott told The Verge: This is the first major disruption that Google is facing to its core business in decades.
During Alphabet’s earnings call, Schindler also said the slowdown was caused by the lower monetization seen in AI Mode.
Schindler argued that AI Mode queries are primarily upper-funnel questions that capture new commercial intent, with most queries acting as incremental additions rather than replacements for existing searches. Google executives defended the long-term potential of conversational search despite lower initial returns.
Andy Taylor, vice president of research at digital advertising agency Tinuiti, noted that advertisers are still seeing positive returns from paid search, with Tinuiti’s same-store advertisers increasing their Google paid search spending 14 percent year over year in the third quarter. Google expanded ads alongside AI Mode searches around the world after initial tests in the United States to capture that value.
It’s not a slam dunk that it’s going to turn into more effective advertising
Andy Taylor, vice president of research at digital advertising agency Tinuiti
Advertisers cannot isolate how Google’s AI ads are performing. 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, bringing in $0.89 versus $2.45.
Google Cloud Beats Expectations Despite Infrastructure Costs
The company spent $51.4 billion on infrastructure in the third quarter alone, and still needs to rent compute from others to run its cloud, The Register reported. The monetization gap comes as Google continues a massive capital expenditure program. Alphabet maintained its capital expenditure forecast of $195 to $205 billion for the year and indicated it plans to spend significantly more in 2027.
Cloud products generated $24.75 billion in revenue, beating analyst guesses by about a billion. Google’s Cloud division outperformed analyst expectations amid the search pressures. Thomas Kurian, Google Cloud’s CEO, reported that more than 100 companies are using the company’s TPU silicon, with all inventory for TPU systems associated with committed contracts.