Google’s AI‑driven search bites into ad revenue, wiping $500bn off market value

Alphabet’s market capitalisation slipped from $3.97 trillion to $3.46 trillion after the company disclosed that its own artificial‑intelligence summaries were eroding search advertising revenue.

Chief business officer Philipp Schindler explained that the company’s “AI mode”, which delivers conversational answers, is “eating into the money it makes from ads which appear next to results to traditional search questions.” He added that he feels “very good about our trajectory” for the AI‑focused version of the search engine.

Former head of Google’s advertising division Kim Scott told the BBC’s Today programme the firm would “rather eat its own lunch than allow someone else to eat their lunch” by letting its AI summaries impact its search revenue. She framed the move as a long‑term bet on AI, noting that Google was founded on making long‑term technology bets even when they hurt short‑term performance.

In the quarter ending September, Alphabet reported a 25 % rise in total revenue to $127.6 billion, but the advertising segment fell short of analysts’ expectations, prompting a sell‑off that sent shares down more than 12 % to a six‑month low.

CEO Sundar Pichai has publicly backed the company’s massive AI spending, a stance echoed by peers Microsoft and Amazon, which also announced continued heavy investment in AI this week.

Forrester principal analyst Tracy Woo noted that the disappointing search results “highlights the challenge of funding massive AI investments while maintaining the strength of established businesses.”

Despite the market dip, Google’s leadership remains confident that the AI‑centric search experience will ultimately pay off.