Alphabet, Google’s parent company, reported third-quarter financial results on Wednesday showing strong revenue growth from July through September 2026. However, the results sent the company’s stock sharply lower after investors focused on weaker-than-expected earnings, slowing search growth, and Google’s admission that AI search generates less revenue than conventional web search. The company also expects to increase its already substantial AI spending next year.
Alphabet generated approximately $128 billion in revenue during the third quarter and reported more than $26 billion in net income. Revenue rose 25 percent year over year, but net income declined by nearly $9 billion. Alphabet’s shares were down about 12 percent at the time of publication, after falling by roughly 13 percent earlier in the day—a record post-closing decline for the company.
Although sales increased 25 percent from the same quarter a year earlier, they fell short of analysts’ expectations. Alphabet reported earnings of $2.12 per share, compared with the $3.02 consensus estimate available on Wednesday.
Google’s cloud business performed better than expected, with revenue exceeding $30 billion, approximately $1 billion above analysts’ projections. Even so, the strong cloud results were not enough to offset concerns about the company’s broader outlook.
AI investment meets slower search growth
Alphabet continues to earn substantial profits, but several trends are raising concerns. The company has increasingly centered its products on artificial intelligence, adding generative AI features to services including Gmail and Android. Google is also shifting its search strategy toward an AI platform powered by its Gemini model.
During the earnings call, Chief Business Officer Philipp Schindler discussed the company’s search volume, one of Google’s key performance metrics. Search volume increased 12 percent year over year in the third quarter, down from 17 percent growth in the second quarter and 19 percent growth in the first quarter compared with the corresponding periods of 2025. Search revenue was flat during the third quarter.
The slowdown may be partly related to consumers using AI chatbots to find information instead of relying on traditional search, although the results do not establish that as the sole cause.
Google’s AI search initiatives are also generating less revenue than standard web search. As Schindler explained, each query in AI Mode produces less revenue, displays fewer ads, and costs less to operate than a comparable conventional web search.
That combination presents a challenge for Google: The company is investing heavily in AI while its newer search experiences may produce less revenue than the web-search model they are designed to supplement or replace.
Source: arstechnica.com
