Investors want evidence that Google’s AI projects will drive growth at scale.
Alphabet, the parent company of Google, has suffered its worst trading day ever, as shares fall by more than 12% with investors questioning the group’s exposure and strategy to AI.
A roller-coaster 24 hours saw Alphabet close the day with approximately $500bn wiped of its value on the Global Nasdaq. The decline is historic as it is the second-largest daily market capitalisation loss in history, behind AI chips manufacturer Nvidia’s $593bn slump recorded in January 2025.
At the centre of the collapse is a fostering concern on how AI will reshape Google’s search advertising, alongside the mounting cost of developing the infrastructure needed to compete in the AI arms race.
Of significance, Google’s search revenue continued to rise but it underperformed market expectations. The results raised concerns that audiences seeking AI answers will question the ever-present dominance of Google search.
The pressure isn’t just from advertising. Alphabet posted negative free cash flow of $9bn in the third-quarter while bottom-line accounts are expected to hit a record $205bn this year alone.
Investors now want clearer evidence the spending on AI projects will generate growth at scale to justify its bloated size. While Google is betting all on an AI future, above other investment opportunities.
Google builds AI spectrum
As reported by Affiliate Leaders, Google’s response is to “expand advertising in AI Mode as it tries to turn changing search habits into business opportunities”.
Accounts detail that AI Mode ads are now moving beyond the US to Australia, Canada, India and Singapore. Brazil, Mexico and the UK will follow in the fourth-quarter of 2026.
Google is also introducing US advertising within follow-up questions so brands can be pushed further down a user’s conversation with its AI search service. Placements will carry sponsored labels.
Pichai maintains AI
Chief executive Sundar Pichai insists the technology is increasing engagement. He said: “Our AI investments are driving increased usage and overall query growth (commercial queries included).”
Google’s chief business officer Philipp Schindler said click-through rates for sponsored products in AI Mode were similar to organic listings early on, but those are still very early signs.
For advertisers and affiliates, it is a central commercial question: how much traffic and purchasing activity will flow through AI conversations and who will capture the revenue?
As an effect of these changes, advertisers may find new ways to reach customers with detailed follow-up questions. Publishers and comparison sites are left wondering if those conversations will drive visits to their websites or satisfy users in Google’s own services.
Alphabet thus has two related problems: how to fund its AI expansion and how to show the technology will strengthen search advertising revenues.
Its cloud division shows demand for AI services. Google Cloud revenue more than doubled to about $30.7bn in tQ3 — a big counterweight to worries about search.
But the market reaction tells us that investors want more than rising usage and rapid cloud growth. Google needs to show that its transition towards AI search can make money as well as eat it up.
