Alphabet reported strong third-quarter revenue growth for 2026, but its shares suffered the largest post-closing decline in the company’s history after investors focused on weaker-than-expected earnings, slowing search growth and the lower revenue generated by AI-powered search. The company also indicated that it expects to spend even more on artificial intelligence next year, despite acknowledging that AI search currently makes less money than conventional web search.
Revenue grew, but earnings missed expectations
Alphabet earned approximately $128 billion in the third quarter of 2026, with net income exceeding $26 billion. Revenue increased 25 percent year over year, although net income fell by almost $9 billion.
Investors were not impressed by the results. Alphabet’s shares were down about 12 percent at the time of publication, after falling by approximately 13 percent earlier in the day.
Alphabet reported earnings of $2.12 per share, below the consensus estimate of $3.02 available on Wednesday. Cloud revenue was a bright spot: The company’s cloud products generated more than $30 billion, about $1 billion above analysts’ expectations. Overall sales nevertheless fell short of what analysts had forecast.
Search growth is slowing
Alphabet continues to generate substantial profits, but emerging trends are raising concerns as the company expands generative AI across products including Gmail and Android. Google is also moving toward an AI search platform powered by its Gemini model.
During the financial results conference, Chief Business Officer Philipp Schindler discussed the company’s search volume, one of Google’s key performance metrics.
Google search volume increased 12 percent year over year in the third quarter. That was considerably slower than the 17 percent growth reported in the second quarter and the 19 percent growth recorded in the first quarter, both compared with the same periods in 2025. Search revenue was flat during the third quarter.
AI search generates less revenue
One possible factor is that more consumers are turning to AI chatbots to find answers. Google’s AI search initiatives also have not yet generated as much revenue as standard web search.
Schindler said that each AI Mode query generates less revenue, requires fewer advertisements and costs less to run than a comparable traditional web search. Alphabet nevertheless expects to increase its AI spending next year, adding pressure on the company to show that its investments can eventually produce stronger financial returns.
Source: arstechnica.com