Wall Street is seeing a major potential shift in Google’s core advertising business as artificial intelligence replaces traditional internet searching and the long-established ways in which it is monetized. Shares of Alphabet , Google’s parent company, tanked after Wednesday’s third-quarter earnings report, falling close to 10% in after-hours trading. Revenues for its services division, which is mostly from ads, came in at $96.3 billion for the quarter, more than $2 billion shy of analysts’ expectations at $98.5 billion, as cited by the Wall Street Journal . GOOGL 5D mountain Alphabet 5 day The Street thinks investors need to be more cautious with Google now that a key revenue driver for the business is being called into question. “Given the abrupt deceleration in digital advertising revenue, investors should be more cautious as that trend may continue going forward,” Gil Luria, head of technology research at D.A. Davidson, told CNBC. “The burden of proof is now on Google that they are not in a permanent decline due to the shift [toward] people using AI chat instead of search.” Analysts are questioning whether the advertising revenues miss could be the start of a larger trend in behavioral changes among internet users. “The world of search is shifting because of the fact that so many people are now doing the kinds of things they would traditionally do through Google, through the chatbots,” Bob O’Donnell, founder of TECHnalysis Research, said. “Clearly, I think we’re starting to see changes in habits, and so they will take time to really [have an] impact. But when they start to change, that theoretically is going to be a big deal.” On Wednesday evening’s earnings call, analysts wanted to know how ads were going to figure into AI queries versus traditional internet searches in the future. “[There was] obviously some deceleration in search growth,” Doug Anmuth, head of internet equity research at JPMorgan, said. “Can you just help us understand the disconnect there? Is it simply that you haven’t been showing as many ads basically in AI overviews in AI mode and that’s now becoming a bigger percentage of the overall queries?” Google executives on the call acknowledged the dip and said they were running experiments to improve results. “The strong growth in AI mode queries had an impact because of the lower monetization we are seeing in AI mode,” Philipp Schindler, Google’s chief business officer, said. “To be clear, we feel very good about our trajectory here. Our ad experiments have shown promising results, and we’re now scaling ads within … AI mode to more users and more queries.”
