‘AI Mode’ Is Denting Google’s Search Revenue

Alphabet shares fell about 10% after-hours after the company reported slower growth in its core search advertising business. Host Luke Vargas asked markets reporter Joe Stoner about Chief Business Officer Philip Schindler’s argument that AI Mode could eventually create new advertising opportunities. Schindler said a growing number of users are choosing AI Mode, that most AI Mode queries are incremental rather than replacing existing searches, and that user research shows people are comfortable with relevant ads on the new surface. He also said click-through rates for sponsored and organic product listings in AI Mode were already similar. Stoner said analysts were not convinced yet. Alphabet’s search business generated roughly $2 billion less than the approximately $90.5 billion analysts had expected, reinforcing concerns that AI answers may reduce the need for users to scroll through conventional search results. KeyBanc Capital Markets analysts said the results suggested margins were compressing and may have peaked in the near term. Alphabet is expanding AI Mode ads into international markets, but investors will be watching whether that produces meaningful revenue. The broader quarter was strong: total revenue rose 25%, and cloud revenue increased 103% year over year. Still, Stoner said search remains the bulk of Alphabet’s revenue, so strong cloud growth cannot offset doubts about whether AI search can be monetized. Analysts were not calling the issue existential or broadly downgrading Alphabet, but they expected the search question to cast a shadow over coming quarters.

Microsoft received a more favorable market reaction because Azure revenue rose 48% in the quarter, roughly twice Alphabet’s cloud growth rate. Vargas noted that Microsoft’s AI fortunes had looked less impressive earlier in the year, partly because it lacks a frontier model comparable to those offered by Google and other companies. Stoner argued that Microsoft is showing how AI can be monetized by embedding it in its established cloud and services businesses. Rather than relying only on a new AI product, Microsoft is benefiting from demand for traditional cloud infrastructure and services, while also demonstrating that it has enough capacity to turn that demand into revenue. In Stoner’s comparison, Alphabet is still trying to figure out how to make AI search replace or exceed the economics of traditional search advertising, whereas Microsoft’s cloud business is already at the center of its model. Microsoft also gave investors a more reassuring financial picture. Its capital-expenditure figure came in below expectations, and the company had enough cash to return some money to shareholders. Vargas asked whether investors might start rewarding hyperscalers for restraining spending after years of rising AI infrastructure budgets. Stoner said higher yields and borrowing costs make that possible, but monetization remains the decisive test: spending hundreds of billions of dollars is acceptable only if companies ultimately generate more than they spend.

Samsung shares pulled back even though the memory-chip maker posted a fourth consecutive quarter of record earnings. Investors were disappointed that Samsung withheld details of its shareholder-return plan until early next year. The reaction contrasted with rival SK Hynix, which had pleased investors by saying it would return $75 billion to shareholders during the year after reporting record results. Shell raised its quarterly share buybacks to $5 billion after earnings doubled, helped by higher oil and gas prices associated in the episode with the Iran war. Its refineries, which turn crude into products such as diesel and jet fuel, were the standout performers. Refining margins reached a record $42 a barrel, making that part of the business especially profitable. Ford reported lower third-quarter revenue and profit as sales of gas-powered and hybrid vehicles softened and its electric-vehicle business continued to lose money. Nevertheless, CEO Jim Farley remained optimistic about a $30,000 electric pickup planned for next year. He said its hands-free BlueCruise driving system and broader digital package, including embedded Apple Maps, could generate subscription revenue. Farley described the digital experience as a major potential upsell, particularly for an EV at that price. The company is therefore not abandoning EVs, but is looking beyond vehicle sales to recurring software revenue.

Volkswagen’s third-quarter losses deepened as the automaker dealt with a downturn in China and write-downs connected to its stake in Porsche. The company had already sharply reduced its guidance the previous month. It said it would continue restructuring, reduce vehicle costs and carry out the plans intended to improve its financial position. Geely, China’s number-two electric-vehicle maker, delivered a more positive result. Its third-quarter profit rose because stronger exports helped offset weaker sales in its domestic market. The contrast underscored the importance of overseas demand for Chinese EV manufacturers as competition and slower sales weigh on the home market. The episode also covered eBay, whose shares rose after the company said customers continued buying trading cards, coins and sports memorabilia. New AI scanning tools are making it easier for sellers to list and price items, which eBay sees as a way to increase the supply of merchandise on its platform. CEO Jamie Iannone singled out Depop, the secondhand-fashion platform eBay bought from Etsy, as a bright spot. He argued that initiatives like Depop are unlocking items sitting in people’s closets: the average household, he said, has about $4,000 worth of goods that could be sold online, while less than 20% of that inventory is currently online.

President Trump escalated his election-fraud allegations in Alaska’s Senate race during a rally in Ohio. He called for Democratic candidate Mary Peltola to be criminally prosecuted and removed from the ballot, and also called for prosecution of a “fake Dan Sullivan.” His comments followed a New York Times report that Peltola campaign staffers had participated in an effort to recruit an independent candidate with the same name as Republican incumbent Senator Dan Sullivan. Trump said the alleged effort amounted to voter fraud and claimed Peltola had denied knowing about it in court. Sullivan’s campaign did not endorse Trump’s demand for immediate prosecution; a spokesman said he would wait for the legal process to play out. The Justice Department said in court filings that it planned to seek information from the Peltola campaign as part of a lawsuit ordered by Trump. The Alaska Supreme Court has ruled that both candidates named Sullivan can appear on the ballot. Peltola’s campaign said after the Times report that it had no involvement with either Sullivan campaign. The segment therefore presented Trump’s allegations, the legal proceedings and the competing campaign statements without reporting a final finding that Peltola had committed wrongdoing.

Vice President J.D. Vance has reached out to one of Iran’s most powerful hard-liners in an effort to revive peace talks. The Journal reported that Vance sent a letter to the head of Iran’s Supreme National Security Council, and that subsequent discussions between U.S. and Iranian officials focused on a possible framework for negotiations rather than the specifics of a peace proposal. The outreach is taking place while President Trump threatens to restart U.S. attacks after the midterms, creating a tension between diplomatic exploration and the possibility of renewed military action. A spokesman for Vance declined to discuss the initiative. An Iranian Foreign Ministry spokesman said he had no information about Vance’s outreach, so the episode did not report an agreement or concrete negotiating terms. The final international story concerned the United States and Cuba. The U.S. expelled a Cuban diplomat after Cuban Foreign Minister Bruno Rodriguez had a heated exchange with U.S. Ambassador Mike Waltz in the hallway of the UN General Assembly. Waltz had been criticizing Havana’s leadership. The incident occurred during the annual debate over Washington’s economic embargo of Cuba, where 130 UN members called on the U.S. to end the embargo. The State Department said the Cuban mission member had been told he was not welcome in the U.S. and had left; the Cuban consulate did not respond to requests for comment.