Google’s AI Search Boom Meets a $497 Billion Market Value Loss

By Nathan Brooks

Alphabet lost nearly $497 billion in market capitalization Thursday, a one-day loss Dow Jones Market Data ranked second among U.S. companies. Only Nvidia’s decline in early 2025 was larger.

MarketWatch reported that Alphabet’s third-quarter results fell short of Wall Street expectations, with search and advertising revenue missing the mark. Alphabet said its AI-powered search experiences had driven the highest query growth in five years. Engagement rose; expected revenue did not.

AI changes the starting point for search

Alphabet built its core business around ranking and indexing the open web. MarketWatch reported that AI changes how consumers navigate the internet, putting that model under structural pressure.

After OpenAI’s ChatGPT became mainstream, MarketWatch reported concerns that consumers would query chatbots instead of turning to Google. Google responded by launching and expanding AI Overviews and AI Mode. AI Overviews place summaries above traditional results; AI Mode offers conversational search powered by Gemini.

Both products have gained some popularity, though AI Mode remains less ripe for monetization than traditional search. MarketWatch said Google’s own AI initiatives could be driving the slump. D.A. Davidson analyst Gil Luria told MarketWatch over email: “The risk to the search business appears to have gone up recently.”

Google’s search economics deteriorate

Third-quarter search revenue grew 12%, well below the 19% growth recorded at the beginning of the year. Alphabet warned that search-revenue growth would face further pressure in the fourth quarter. Paid-click volume growth slowed sequentially from 13% in the first quarter to 8% in the third.

Luria tied the slowdown to consumer behavior: “Changing consumer behavior may finally be impacting advertising revenue.” MarketWatch’s reporting showed the same shift reducing organic traffic as users relied more on chatbots and AI Overviews.

Users move toward rival assistants

OpenAI’s ChatGPT and Anthropic’s Claude are drawing attention, Luria said. He also pointed to Meta Platform’s Muse, an agentic consumer tool that can cut traditional search out of the equation. “While we are early, advertisers are likely to follow those consumers at Google’s expense,” Luria said.

What does this change for advertisers?

In a standard Google search campaign, a business sets a budget and bids on keywords that trigger text ads. Historically, businesses also relied on free website traffic from search engine optimization as users browsed the web. As users turn to chatbots and AI Overviews, organic traffic is declining, MarketWatch reported.

Conner Crowe, a fractional marketing lead who acts as a contract marketing director, has seen Google advertising costs rise and clicks fall over the past three years. “Many of the ad slots are now falling below the AI Overview, so a lot of people aren’t making it to that area,” Crowe told MarketWatch.

Among 12 local businesses whose Google ads Crowe manages, the median business now pays more than twice as much per click as it did in summer 2023. Eleven of the 12 pay more. The median business also has a lower click-through rate, the share of people who select an ad after seeing it.

Grey Matter, a marketing firm, found that business-to-business search clicks cost roughly 21% more from April through September 2026 than a year earlier. “From where advertisers sit, Google’s search auction keeps getting more expensive as AI changes how people search,” Andy Hendricks, head of search at Grey Matter, told MarketWatch.

AI referrals become contested

Businesses are increasingly trying to appear in AI Overviews and chatbot conversations, Crowe said. Google treats backlinks as a core ranking signal, but organic mentions on other sites, including Reddit, are more likely to prompt a chatbot to mention a business. For Crowe and his clients, the “highest quality” leads now come from AI interfaces.

“Getting found in AI search is like getting a really warm referral from a good friend,” Crowe added. That model remains uncertain because platforms need traffic to monetize their content, and Reddit does not want its content to appear in AI conversations unless users return to its site.

Reddit’s referrals from search took a major hit last quarter, and that trend is set to continue, CEO Steve Huffman said. He blamed Google’s “aggressive” AI push. On Thursday’s earnings call, Huffman said: “The reality is the AI Mode does not drive traffic, not for us and not to anybody, as far as I know. It’s just a fundamental shift in how Google works. It used to be a traffic driver, now it’s not.”

Google tries to monetize conversational search

Google is scaling ads within AI Overviews and AI Mode. Chief business officer Philipp Schindler told investors Wednesday that Google sees lower AI Mode monetization even as the feature records more queries. The company plans to expand ads featured in AI Mode to new countries.

Dan Flax, senior research analyst at Neuberger Berman, told MarketWatch that Google has experimented with different ad formats within AI surfaces. He believes the search business can adapt and that Google will be able to monetize conversational queries effectively over the long term.

For now, Schindler said Google is taking a “deliberate” approach that prioritizes user experience and engagement on Alphabet’s earnings call. Jed Ellerbroek, a portfolio manager at Argent Capital Management, remains more optimistic. “Google has an insane amount of users and an insane amount of habits formed, and they’re in a very good position to make this transition [with AI] successfully,” Ellerbroek said.

For Google, the test is whether broader AI Mode advertising can convert five-year-high query engagement into durable revenue without further eroding the traffic economy beneath it. For advertisers, the change is already measurable: clicks cost more, fewer people reach the sites behind them, and earned visibility inside AI answers is becoming a new source of leads.