Google parent company Alphabet reported its third-quarter financial results Wednesday afternoon, showing a healthy increase in revenue for the months of July through September. But the company’s stock price has taken a hard hit, marking one of the biggest post-earnings declines in its history. It all comes down to several worrying aspects of the new report, including the company’s admission that AI search doesn’t generate as much revenue as organic search, and despite that, Google expects to spend even more on AI next year.
The company raised nearly $128 billion in the third quarter of 2026, earning more than $26 billion in net income. These may look like good numbers, but financial markets are not impressed. While revenue is up 25 percent compared to last year, net income is almost $9 billion lower. As of this story’s publication, the stock price is down nearly 12 percent, and was down about 13 percent earlier in the day.
While revenue was up 25 percent year over year, analysts expected more. Google reported earnings per share of $2.12, but the consensus projection before Wednesday was $3.02. Google’s Cloud products truly exceeded expectations, surpassing $30 billion in revenue. That’s about a billion more than analysts assume.
Google is still making a huge amount of money, but several worrying trends are emerging. The last few years at the company have revolved around AI, and generative technology has appeared in products from Gmail to Android. In particular, Google is shifting to an AI search platform powered by Gemini models.
During the earnings conference call, Chief Commercial Officer Philipp Schindler discussed the company’s search volume. This is one of the key metrics by which Google tracks its own performance. In the latest quarter, Google saw searches grow 12 percent compared to last year. Good for the company, right? Except it’s a much slower pace than previous quarters. Growth in the second quarter was 17 percent and the first quarter saw 19 percent growth over 2025. Search revenue was also stable in the third quarter.
So that’s the first problem, probably driven by more consumers using AI chatbots to find answers. The other problem is that Google’s vision of AI search still doesn’t generate revenue like standard web search. According to Schindler, each query in AI mode generates less revenue compared to a similar web search: there are fewer ads and they cost less to execute.
