Google search revenue growth slows to 12% as AI Mode queries monetize at lower rates

Alphabet's latest quarterly results contain a paradox at the center of its AI strategy: people are using Google Search more than they have in half a decade, yet the revenue that search produces is growing more slowly. According to The Verge, the company said queries grew at their fastest rate in five years during the third quarter, while Search revenue growth slowed to 12 percent year over year, down from roughly 17 percent in the prior quarter. Growth in paid clicks — the ad clicks that generate Google's revenue — decelerated from 13 percent to 8 percent.

Investors reacted sharply. Alphabet shares have fallen about 14 percent since the report, The Verge notes, as questions mount over the returns on the roughly $200 billion the company plans to spend on infrastructure this year, largely to support AI.

Currency, advertisers and a lower-monetizing search

Chief Business Officer Philipp Schindler attributed most of the revenue slowdown to currency effects and changes in advertiser spending across certain industries, according to The Verge. But he acknowledged that Google's AI overhaul also contributed: queries in AI Mode, its conversational search experience, are growing quickly while monetizing at a lower rate than traditional searches. Schindler said the company's advertising trials inside AI search are delivering encouraging early signals and that Google is comfortable with its trajectory.

Google's argument is that AI expands rather than cannibalizes the business. Schindler said most AI Mode queries are "incremental" — additional questions rather than replacements — and that many are exploratory, coming from people researching potential purchases before they know what they want. The company views those sessions as inventory it can sell ads against over time. Google is currently widening ads in AI Overviews and AI Mode, including internationally and across multiple turns of US AI Mode conversations, and has floated bringing similar formats to the standalone Gemini app without announcing a date.

Early evidence from conversational ads

Conversational queries do not automatically convert into commerce. An October working paper cited by The Verge found that US visits driven by ChatGPT ads generated 64 percent less revenue for retailers per session than visits from Google Search ads — $0.89 versus $2.45. The study measures retailer sales rather than platform revenue, and its findings about ChatGPT do not establish how Google's own AI ads perform.

Andy Taylor, vice president of research at the advertising agency Tinuiti, cautioned that such comparisons may reflect purchase intent rather than ad effectiveness: someone searching Google for a specific sneaker may be ready to buy, while someone asking an AI assistant which running shoe to choose is still deciding.

Advertisers keep spending, but cannot see inside

For now, returns remain healthy. Tinuiti's same-store advertisers increased their Google paid search spending 14 percent year over year in the third quarter while maintaining their return-on-ad-spend targets, The Verge reports. Taylor said performance has not deteriorated.

There is a measurement blind spot, however. Google does not allow advertisers to separately target its AI ad inventory or break out its performance, Taylor said, so steady aggregate returns could mean either that AI ad traffic is still too small to register, or that it performs on par with existing inventory. Taylor suspects the former.

Why it matters

The open question is whether AI queries add to Google's advertising business or quietly replace it. Additional searches could produce new revenue even if each one earns less than a traditional query, but AI Mode may also pull users away from the searches Google monetizes most effectively — and Google's claim that most AI Mode queries are additional does not quantify the revenue lost from those that are replaced. eMarketer principal analyst Nate Elliott, speaking to The Verge, called this the first major disruption to Google's core business in decades and noted that finding ad formats that actually work, as search engines and social platforms each once had to do, can take years. Taylor points to a more reassuring precedent in Google's own mobile transition, where early phone traffic was worth less to advertisers until mobile shopping matured. With search revenue still growing by double digits, Alphabet has room to experiment. But at roughly $200 billion of annual infrastructure spending, the cost of taking years to figure it out is higher than it has ever been.