$500 billion gone up in smoke: Google’s AI mode turns against Google

Alphabet’s stock plunged nearly 13% on Thursday, wiping out approximately $500 billion in market capitalization. Never before seen for Google’s parent company since it went public in 2004, the previous record, an 11.63% drop, dates from March 2020.The previous day, however, the group announced quarterly revenue up 25%, to $127.6 billion, driven by a cloud business that doubled in a year.

The admission that dampened Wall Street’s enthusiasm

The problem is concentrated in search, which accounts for nearly half of the group’s revenue on its own. Its revenue grew by 12% in the third quarter, to $63.35 billion, falling short of analysts’ expectations for the second consecutive time. The two preceding quarters had still posted growth of 19% and then 17%.

Asked during the earnings presentation, Philipp Schindler, Google’s chief commercial officer, first pointed to exchange-rate effects, which he identified as the main factor behind the slowdown. Before getting to the point: “the strong growth in AI Mode queries has had an impact, because of the lower monetization we are observing”. In other words, internet users have never searched Google so much, with query growth even running at its fastest pace in five years, but each AI-generated answer brings in less revenue than ten blue links.jamais autant interrogé Google, la croissance des requêtes atteint même son rythme le plus élevé en cinq ans, mais chaque réponse générée par l’IA rapporte moins que dix liens bleus.

At the same time, the group is spending record amounts on its data centers, with $195 billion to $205 billion planned for the year, and its free cash flow came in at negative $9.07 billion for the quarter. Spending more to earn less on each query: Wall Street has rendered its verdict.

Reddit, the first domino to fall

Google is not the first victim of its own AI-enhanced answers. On Thursday as well, Reddit announced the planned end of its logged-out browsing: tests of access restricted to logged-in members begin this quarter, outside the United States. The platform says it lost more than 1 million referrals in October per week from search engines. Its daily traffic could fall by around 10% by the end of the year, it warns. Its CEO Steve Huffman accuses: “Google has really changed its relationship with the rest of the Internet.”

Google, for its part, is responding with advertising. The group is extending ads to AI Overviews and AI Mode, and rolling out AI Mode ads in ten additional countries, including Brazil, Mexico and the United Kingdom. Schindler sees queries “upstream of the purchase,” carrying new, high-value commercial intent.

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Source: Bloomberg