Investors worry Google AI search could hurt its ad business

In short: Alphabet’s share price dropped after investors reacted to signs that Google’s advertising growth is slowing as it shifts toward AI-style search.

What's going on

Alphabet, the parent company of Google, lost close to half a trillion dollars in market value in a single day after reporting an unexpected slowdown in its advertising business, according to the Financial Times.

The concern is that AI-powered search results can reduce the number of ad spots Google can show. Traditional search often shows several links and ads, like a page of options. AI search can act more like a single answer, which leaves fewer obvious places to put ads.

That matters because advertising brings in about two-thirds of Alphabet’s revenue. The FT also noted that Meta, which owns Facebook, is growing ad sales more than twice as fast.

At the same time, Alphabet is spending heavily on AI data centres, which are large buildings filled with computers that run AI systems (think of them as power plants for software). Forecasts cited by the FT suggest Alphabet could face a funding gap by the end of next year if cash spending stays above cash coming in.

The FT also pointed to tougher competition in AI tools, including software “coding agents” (AI helpers that can write and edit code). Recent senior departures from Google’s AI labs have added to investor uncertainty.

What to watch

The FT argues this race can change quickly. Alphabet has launched new AI models, including Gemini 4 Carbon, that have scored well on some public rankings. Investors will be watching whether Google can grow AI search without shrinking its ad business, and whether its cloud business can help cover the rising costs of building more AI infrastructure.

Source: Financial Times