Google says AI is increasing searches, but ad growth is slowing

In short: Google says people are searching more, but the advertising business that funds Search is not growing faster.

What's going on

Alphabet, Google’s parent company, said search queries are growing at their fastest rate in five years. That suggests more people are using Google Search and asking more questions.

But Google’s Search revenue grew more slowly in the third quarter. It increased 12 percent compared to a year earlier, down from about 17 percent growth in the previous quarter. Growth in “paid clicks” also slowed, from 13 percent to 8 percent. Paid clicks are when someone clicks an ad, and that click helps Google make money.

Google Chief Business Officer Philipp Schindler said the slowdown was mainly due to currency changes and shifts in advertiser spending in certain industries. He also said Google’s newer AI features are part of the picture. Schindler said “AI Mode” searches are growing strongly, but they “monetize” at a lower rate than traditional searches, meaning they make less money per search.

Investors are paying close attention because Alphabet expects to spend about $200 billion this year on infrastructure, much of it to support AI. Infrastructure here mainly means the computers and data centers (large buildings full of servers, like warehouses for computing power) needed to run AI tools. Alphabet’s shares have fallen about 14 percent since the earnings report, as investors question whether the AI spending will pay off.

What to watch

Google says its ad tests inside AI-powered search are showing “promising results,” but it is still unclear whether AI search can reliably bring in ad money at the same rate as the old style of search. A key sign will be whether paid clicks and Search revenue growth start speeding up again as Google expands AI features and adds more ads.

Source: The Verge AI