Shares of Google parent company Alphabet fell 12.6% on Oct. 29, the biggest one-day drop in the company's history, as investors worried about how artificial intelligence is affecting Google's search business, its main source of revenue.
Shares of Google parent company Alphabet fell 12.6% on Oct. 29, the biggest one-day drop in the company's history, as investors worried about how artificial intelligence is affecting Google's search business, its main source of revenue.
Fortune reports this, citing Alphabet's reporting and Bank of America's estimates.
Google search remains the company's main source of revenue. In the third quarter, it, along with related services, brought in $63.35 billion, up 12% from a year earlier. However, analysts had expected growth of 15%. Moreover, the pace is gradually slowing. In the first quarter, search revenue grew by 19%, in the second - by 17%, and now by only 12%.
It turns out that it's not even a matter of Google's popularity declining. On the contrary, according to CEO Sundar Pichai, the number of search queries is now growing at the fastest rate in the past five years.
But one cause for concern is the emergence of AI-generated answers directly in search results. Instead of navigating to websites, users are increasingly getting the information they need from Google AI Overviews.
A study by the Pew Research Center has shown how much AI is already changing people's behavior. If the search results contained an answer from AI, users followed regular links only 8% of the time. Without such an answer, it was 15%. Therefore, analysts fear that new user habits could change how the company makes money from advertising.
However, Google is already trying to adapt. The company is already expanding the display of ads within AI Overviews and in AI Mode.
Google's search business is now worth less than oil and gas companies relative to its earnings, according to Bank of America, suggesting analysts are skeptical about its future growth. But Google Cloud is booming, with its revenue more than doubling in the quarter.
However, Alphabet is spending more and more money on AI infrastructure, which is also worrying investors. Despite this, Bank of America continues to recommend buying Alphabet shares. Analysts expect the growth of the search business to accelerate again in 2027.
Previously, dev.ua wrote that Google has begun testing the automatic deployment of such AI responses. This causes regular links to drop even lower on the page, making it harder for sites to attract visitors.
