Alphabet just delivered a quarter with two very different stories: total revenue up 25% to $127.6 billion, and advertising growth far behind. Google’s advertising line came in at $82 billion against the $83.5 billion analysts expected, with ad revenue up 10.5% while the whole company grew 25%. Shares fell about 7% after hours and later by more than 11%.
Earnings per share also missed at $2.12 versus $2.99 expected, partly due to an unrealised loss on Alphabet’s SpaceX stake.
The numbers behind the reaction
- Search ads: $63.4 billion, up from $56.6 billion a year earlier.
- Search growth: 12%, down from 17% in the second quarter.
- YouTube ads: $11.2 billion.
- Google Cloud: $30.7 billion, up 103%.
Sundar Pichai framed the quarter as a big step: Google is now on a half-trillion dollar revenue run rate. Investors focused on the ad line instead.
AI Mode is changing the search math
Google says AI Mode queries are growing fast and run about three times longer than standard searches. That is strong engagement, but AI Mode currently shows fewer ads than a traditional results page. Philipp Schindler, Google’s chief business officer, said “the strong growth in AI Mode queries had an impact” on the ad slowdown, alongside currency headwinds and one-time pullbacks from Asia-Pacific advertisers after the EU ended its de minimis customs exemption.
The strategic tension is clear: query growth is excellent, but it has not yet monetised at the same rate as classic search. Google’s response is to put ads deeper into the conversation.
More AI Mode ads, more markets
Hours after the earnings release, Google said AI Mode ads will expand to 10 more countries: Australia, Canada, India, Kenya, Malaysia, New Zealand, Nigeria, Pakistan, the Philippines and Singapore. Brazil, Mexico and the UK follow in the fourth quarter.
In the United States, Google is launching multiturn ads that can appear on follow-up questions during a back-and-forth with AI Mode. They will carry a “Sponsored” label. Ads first appeared in AI Mode in May 2025.
What marketers should do
AI Mode changes the unit of search from a single keyword page to a conversation. That means an ad may appear on the second or third turn, not just the first response. Treat AI Mode as a new placement: monitor CTR, watch whether budgets shift from classic search, and build creative that works sequentially. If a user asks a follow-up question, the next ad should feel like a natural next step, not a repeated pitch.
For context, Microsoft’s Bing search ad revenue rose 12% in its fiscal first quarter, suggesting the search market still has demand even as Google manages its AI transition.
Source: PPC Land
