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Google’s $500bn bloodbath reflects the danger it faces from AI
As its search engine sputters, rivals gain ground
Prefer HTon Google
Soon after ChatGPT first captured the world’s attention four years ago, some investors began to fret that clever chatbots would upend one of the most lucrative businesses to have emerged in decades: Google search. For a time these concerns seemed unfounded, with the firm’s ad sales showing little sign of slowing. On October 29th, however, the fears returned with a vengeance, as Alphabet, Google’s parent company, shed $500bn of market value, 12% of its total, in a single trading session following disappointing quarterly earnings the previous day.
In the three months from July to September Google’s ad revenue from search and other businesses grew by 11%, year on year, the slowest pace in five quarters. A strong performance at the company’s cloud arm did little to assuage investors. Before long Meta, which has been quicker to harness artificial intelligence to boost its advertising business, may overtake the search giant as the world’s biggest generator of ad revenue.
Google’s executives offered various excuses to explain its slower-than-anticipated growth in ad revenue. What rattled investors was its acknowledgment that the increasing use of “AI Mode” in Google search, which produces chatbot-like answers, was producing “lower monetisation” than traditional search.
MoffettNathanson, an investment-research firm, likens Google’s problems to the time a few years ago when Meta introduced Reels, its short-form video product, to counter TikTok. Although Reels weighed on ad-sales growth at first, its effect later turned positive as the company found ways to better monetise the time users spend on the service. Indeed, Meta’s share of the worldwide advertising pie has soared. Its third-quarter ad revenue, which it reported last week, grew by 26%, year on year.
Meta’s faster growth used to be explained partly by the fact that its advertising business was smaller. No longer. Stripping out payments to Apple and others, Google’s ad revenue was similar to Meta’s in the quarter. On that definition, eMarketer, a data gatherer, earlier this year predicted that by the end of 2026 Meta’s worldwide ad sales would overtake Google’s.
Meta has been more aggressive than Google in integrating AI into its ad business. According to Luke Stillman of Madison & Wall, an advisory firm for the advertising industry, AI has been used to improve recommendation engines across Facebook, Instagram and WhatsApp, bolstering engagement. Meta’s AI-powered tools for advertisers, such as Advantage+, drive a bigger share of its business than those at Google, such as Performance Max, he says. Google may also be hamstrung by serving ads over a variety of formats, including search and YouTube, whereas Meta’s social-media apps are more uniform.
Madison & Wall argues that double-digit growth, whether for Google or Meta, is still strong relative to the historical trajectory of advertising, and considers these rates “unsustainably high”. Amazon, an e-commerce giant with a sizeable ad business of its own, reinforced concerns on October 29th when it reported that its ad-revenue growth had slowed to 12%, year on year, down from 26% in the previous quarter. In after-hours trading its shares also fell. As all three titans continue to invest gargantuan sums in data centres, the health of their advertising cash cows becomes all the more important.
