Google plans to show ads inside AI Mode outside the United States for the first time. It also plans ads that change as a conversation goes on. The move follows a third quarter in which growth in its core search business slows to 12%. Google points to its own AI search product as one of the reasons.
Alphabet reports revenue of $127.6 billion for the quarter ending September 30, up 25% from a year earlier. Search and other ad revenue rises 12% to $63.3 billion. That is down from 17% growth in the second quarter and 19% in the first. Search also drops below half of Alphabet revenue for the first time in its modern history, at 49.7%, based on an analysis by Mobile Dev Memo.
Shares fall as much as 10% after the results. Investors react to the search slowdown, a profit miss tied to a loss on its SpaceX stake and negative free cash flow.
Google Admits AI Mode Earns Less Per Search
Google names three causes for the slower search growth. The first is currency swings. The second is softer spending from some retail and media advertisers in Asia Pacific after a strong World Cup quarter. The third is the rise of AI Mode, its chat style search tool.
Chief Business Officer Philipp Schindler tells analysts on the earnings call that “the strong growth in AI Mode queries had an impact because of the lower monetization we were seeing in AI Mode.”
The admission matters. For the past two years, Google argues that AI answers grow search as a whole. This quarter shows the trade off in numbers for the first time.
Usage numbers back the growth side of that claim. Search queries grow 12% year over year, which the company calls the fastest rate in five years. AI Overviews reach about 2.5 billion monthly users and AI Mode about 1 billion. Chief Executive Sundar Pichai says AI Mode queries run “three times longer than traditional searches” on average. One in five AI Mode searches worldwide now uses voice, images or documents.
Longer, chatty questions create a pricing problem. A classic search for running shoes shows a page of ads above ten blue links. A long AI Mode question about the best cheap shoe for flat feet returns one written answer. That answer leaves far fewer spots for paid placements.
New Ad Formats Coming to AI Mode and AI Overviews
Google responds by putting more ads into its AI products. Schindler says the company is “now scaling high quality ads within AI Overviews and AI Mode to more users and queries.”
| Change | Where | What It Means for Advertisers |
| Ads in AI Mode | International markets, first time | A new ad surface outside the US |
| Multi turn ads | United States | Ads that update as a user asks follow up questions |
| More ads in AI Overviews | More users and queries | Wider reach for existing search campaigns |
| Gemini ad asset creation | All advertisers | More than 1.5 billion campaign assets created, up more than seven times in a year |
Changes to Google ads in AI search announced in October 2026
Google gives zero detail on which markets come first or when the rollout starts.
Schindler adds that “people are comfortable with ads on these surfaces,” based on internal user research. The company also says most AI Mode queries are incremental. In other words, they add new searches on top of classic ones, so they leave the old ad business intact.
Google Builds Checkout Into AI Search
The bigger change for online sellers goes beyond ads. Google says its Universal Commerce Protocol “enables direct checkout for hundreds of thousands of brands across Google.” It also launches a Universal Cart during the quarter.
Together, the two features let an AI answer suggest a product and complete the purchase in one flow. The shopper skips any visit to the seller website. It is the clearest sign yet that Google sees search turning into a shopping agent that acts for the user.
Google is far from alone. OpenAI, Amazon and a long list of startups now build agents that research, compare and buy for shoppers. Directories such as AI Agents Choice track these tools by task and industry, a sign of how crowded the field gets in under two years.
How Google Gets Here
The ad push caps a fast two year shift in how Google search looks. AI Overviews, the AI summaries above regular results, reach US users in May 2024, and Google starts testing ads inside them soon after. AI Mode, a full chat style search tab, arrives in the US in May 2025 and expands to more countries in the months that follow.
Each step moves Google further from the page of ten blue links that funds the company for two decades. Each step also forces a new answer to the same question: where do the ads go when the answer is a paragraph?
Rivals push from the other side. ChatGPT, Perplexity and other AI agents take a growing share of product research. Google needs AI Mode to keep those users, even if each AI Mode query earns less than a classic search.
Investors Focus on Spending and Cash Flow
Outside search, much of the quarter looks strong. Google Cloud revenue more than doubles, up 103% to $30.7 billion, with operating income above $11 billion. The cloud backlog reaches $561 billion. The Gemini app passes 1 billion users. Pichai calls it the fastest growing product in company history.
Investors focus on cash. Capital spending reaches $51.4 billion in the quarter, and free cash flow turns negative at about minus $9.1 billion. Alphabet keeps its 2026 capital spending forecast at $195 billion to $205 billion and says spending climbs sharply in 2027.
| Metric | Result |
| Total revenue | $127.6 billion, up 25% |
| Search and other ads | $63.3 billion, up 12% |
| Google Cloud | $30.7 billion, up 103% |
| YouTube ads | $11.2 billion, up 9% |
| Capital spending | $51.4 billion |
| Free cash flow | About minus $9.1 billion |
| Gemini app users | More than 1 billion |
| Stock reaction | Down as much as 10% |
Alphabet third quarter 2026 at a glance
The math worries some investors. Google spends record sums to build AI capacity. At the same time, its most profitable product earns less per query in the AI version of search. Until ad prices in AI Mode catch up, every query that moves from classic search to AI Mode carries a smaller margin.
Some analysts see a familiar pattern. Mobile Dev Memo author Eric Seufert points to Meta. Its short video Reels format starts with weaker ad revenue than its main feed, then closes much of the gap over time. He calls it an open question whether the AI Mode gap is built into the format or fixable with better ad tools.
What Advertisers and Online Stores Need to Watch
For marketers, the announcements change where search budgets go and how campaigns run.
- New inventory: ads in AI Mode outside the US give global brands a fresh placement. Early prices are set to start below classic search.
- Conversation based targeting: multi turn ads reward clear product data and creative that matches follow up questions.
- Shopping feeds matter more: with direct checkout inside Google, product titles, prices, stock and shipping data decide whether an AI answer picks your product.
- Measurement gaps: purchases that complete inside Google send fewer visitors to brand websites, so attribution shifts toward platform reports.
Budgets follow the inventory. Brands that spend heavily on search now need a plan for AI placements, with separate goals, creative and reporting. Small tests in a few markets show cost and sales before Google opens the new formats wider.
Small online stores feel the shift most. A shop that depends on Google search traffic now competes for a single slot in an AI answer. Its product feed has to stay accurate around the clock. Many merchants already use AI agents for Shopify dropshipping to sync supplier stock, update prices and fix listing errors before Google checkout shows a product.
What Comes Next for Google Search
Three things will show whether the ad push works. First, the pace of the international AI Mode ad rollout, which still has zero public date. Second, any change in search revenue growth in the fourth quarter, when holiday shopping lifts ad spending. Third, the share of purchases that start and end inside Google through Universal Cart.
Regulators also watch closely. Google already faces antitrust cases over search and ad technology in the United States and Europe. A checkout that keeps shoppers inside Google gives critics fresh material.
For now, the quarter sends a clear message from the company that built the modern search ad business. AI search draws more questions than ever. Google is still working out how to earn as much from each one.
