Alphabet Search Growth Slows Amid AI Shift — SkimNews
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- Alphabet reported $63 billion in search and other revenue, a 12% year-over-year increase but below estimates for the second straight quarter despite the strongest search query growth in five years.
- Gene Munster of Deepwater Asset Management said AI-powered personalized bots could become the starting point of commerce, directly threatening Google's dominance in search-driven ad revenue.
- Alphabet executives attributed the search revenue deceleration primarily to foreign exchange impacts, which they expect to worsen in the fourth quarter.
- Google Cloud revenue more than doubled to nearly $31 billion, with a $560 billion backlog reflecting strong contracted demand for AI infrastructure, including TPUs sold to external customers.
- Philipp Schindler stated AI is driving the majority of Google's product launches, including its biggest update to product listing ads in a decade, powered by Gemini models.
- Advertisers used Gemini models to generate over 1.5 billion campaign assets in Q3, up more than sevenfold from the prior year, as AI adoption accelerates in ad creation.
- Alphabet's free cash flow turned negative at $9 billion in the quarter—triple the expected deficit—amid heavy AI infrastructure spending, following a record negative $5.9 billion in Q2.
Why it matters: Google’s core search business is showing its first real signs of AI-driven revenue erosion despite rising usage, undermining its monetization narrative. With $195B–$205B in planned 2026 capex and rising cash outflows, Alphabet must prove cloud and AI tools can offset weakening ad performance before investor confidence deteriorates further.
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