Is AI Killing Google's Golden Goose?

Alphabet's Google has seen a significant drop in its stock value following a disappointing earnings report, much like Meta Platforms did just a week prior. Despite posting a 25% revenue growth to $127.6 billion, the search giant failed to meet expectations with revenue falling short of the $127.9 billion target. Operating income rose to $40.6 billion, with a 32% operating margin, but earnings per share fell from $2.87 to $2.12.

This decline was primarily due to a $8.2 billion loss on equity securities, largely stemming from an investment in SpaceX. The slowdown in Google Search's revenue growth, which increased by 12% to $63.4 billion, marked its weakest performance since 2023, coinciding with a broader industry slowdown in digital advertising. However, this could be attributed to users shifting towards AI-powered chatbots like ChatGPT and Claude, rather than macroeconomic factors.

Alphabet's management argued that the company is retaining market share and that AI mode will generate more monetization opportunities in the future. The company also announced plans to expand ads in AI mode internationally and offer sponsored placements for follow-up questions in the U.S. Despite the 12% sell-off in Alphabet stock, the company's strong growth in queries and its robust cloud business suggest it may rebound if it can stabilize search growth in the coming quarters.