Google’s AI gold rush hit a $465B wall as search growth slowed to 12% 🔍

Alphabet shares fell nearly 12% early Thursday, putting them on course for their worst post-earnings drop on record and erasing roughly $465 billion in market value, more than three times the company’s $127.6 billion quarterly revenue. The decline came as Alphabet investors weighed slowing Google Search growth against strong performance from Google Cloud, with $GOOGL down 13%.

Google Search revenue rose 12% to $63.35 billion in the third quarter, down from 17% in the second quarter and below analyst expectations of about 15%. Chief Executive Sundar Pichai said query growth hit its fastest pace in five years. However, Chief Business Officer Philipp Schindler said weaker earnings from AI Mode, Google’s chatbot-style conversational search, contributed to the slowdown. Each AI Mode search currently generates less advertising revenue than a traditional search, and Google is still testing ads within the product.

Spending added to investor concerns after free cash flow, the cash remaining after investment, fell to minus $9.1 billion. “In a market worried about AI cannibalising the franchise, investors need to see search accelerating, not decelerating,” Reuters reported, citing Dave Wagner, portfolio manager at Aptus Capital Advisors. Bull Theory also highlighted the slowdown on X, noting that Alphabet was “on track for its WORST post-earnings decline on record: As fears over the future of Google Search intensify despite Cloud revenue more than doubling.”

Google Cloud revenue rose 103% to $30.7 billion, while the company had $561 billion in signed contracts not yet billed. Rosenblatt analyst Scott Devitt projects Cloud will out-earn Search and YouTube ads combined by 2028. Shares had also fallen 7.1% after July’s results, and BeInCrypto’s pre-earnings analysis identified $306 and then $275 as downside levels before Thursday’s move broke the first target.

Of 29 analysts tracked by TipRanks, 25 rate the stock a buy, with an average target of $398.50, though most of those targets predated the earnings report. AI Mode ads are now expanding to 10 more markets as Alphabet seeks to close the advertising revenue gap between AI-powered searches and classic Google queries.