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Google struggling to make AI Mode searches pay

AIOctober 29, 20262 min read

Google's AI Mode search earns less money than its old search ads, and Alphabet's shares fell almost 10% after the news. The company is spending huge sums on AI servers and data centers.

What happened

Alphabet, Google's parent company, reported its third-quarter results on Wednesday. The company said searches made with AI Mode bring in less money than regular search ads. Investors reacted fast, and Alphabet's shares dropped by almost 10%. Google also started showing ads next to AI Mode results around the world. It had tested them only in the US before.

Key numbers

Google search revenue rose 12% from a year earlier, to $63.25 billion. Last year's growth was 14.5%.
Google spent $51.4 billion in the quarter. About two thirds went to servers and networking equipment.
Alphabet's net income was $26.17 billion. Last year's third quarter made $35 billion.
Google Cloud earned $24.75 billion in the quarter.
Google expects capital spending of $195 to $205 billion for this year.

Why AI Mode is a money question

AI Mode is Google's newer search tool. It uses a large language model, a type of AI that writes and answers in full sentences. Google makes most of its money from ads, so the way people search affects its income. Google also does not have enough computing power for all its cloud customers. It has started to rent capacity from other companies, which may lower its profit margins in the future.

Why it matters

Google is spending huge amounts on AI, and it needs AI search to make money to pay for that spending. Chief business officer Philipp Schindler said AI Mode queries are new and valuable, and that they add to Google's income over time. But for now, AI Mode earns less than old-style search. CEO Sundar Pichai said Google will bring AI agents, tools that can take actions for users, to business customers first. He did not say when they would reach search.

What to watch

Whether ads on AI Mode earn more money over time.
Whether Google's TPU chips bring in more revenue from outside customers in coming quarters.
When AI agents come to Google Search.
Whether Google keeps its $195 to $205 billion spending plan for this year.

Glossary

AI Mode: Google's newer search tool that uses AI to answer questions instead of only showing a list of links.
Alphabet: The parent company that owns Google and other businesses.
TPU: Tensor Processing Unit, Google's own computer chip built to run AI work.
Google Cloud: Google's business that rents computing power and software to other companies.

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