Google’s growing investment in artificial intelligence is drawing renewed attention from investors as its parent company, Alphabet, faces questions about the cost of AI expansion and the future growth of its core search business.
Alphabet reported third-quarter revenue of $127.58 billion for the period ended September 30, 2026, up 25% from a year earlier. However, concerns over rising infrastructure spending and slower-than-expected growth in Search revenue weighed on investor sentiment, according to Reuters.
Google Search and other revenue reached $63.35 billion, an increase of 12% year over year. The growth was below analysts’ expectations, raising questions about whether the company can maintain its traditional advertising business while investing heavily in AI-powered products.
Alphabet’s Google Cloud business delivered stronger growth, with revenue more than doubling to $30.71 billion during the quarter. The results highlight the growing commercial importance of AI infrastructure and cloud services, even as investors assess the costs of expanding these operations.
Reuters reported on October 29 that Alphabet shares fell nearly 10% in after-hours trading following the results. The report also highlighted a broader shift in investor priorities, with greater emphasis on cash generation and the ability of technology companies to finance AI investments sustainably.
Google says its AI investments are increasing search activity. According to comments from Alphabet Chief Executive Sundar Pichai reported by The Verge, the company’s year-over-year search query growth rate reached its highest level in five years. Pichai said AI investments were driving overall Search query growth, including commercial queries.
Google is also expanding the role of advertising in its AI-powered search experiences. In an announcement published on October 28, the company said ads in AI Mode were expanding to Australia, Canada, India, Kenya, Malaysia, New Zealand, Nigeria, Pakistan, the Philippines and Singapore. Google also said it planned to expand to additional markets, including Brazil, Mexico and the United Kingdom, during the fourth quarter of 2026.
The company said queries in AI Mode are, on average, three times longer than traditional searches. It also reported that click-through rates for sponsored and organic product listings within AI Mode were similar in its internal US data collected between August 20 and September 3, 2026.
The expansion provides Google with additional opportunities to connect advertisers with users asking detailed questions or comparing products and services. However, the long-term financial contribution of these advertising formats remains to be established.
The developments also have implications for publishers and other businesses that rely on Google Search for website traffic. AI-generated responses can provide information directly within search results, potentially reducing the need for users to visit external websites for some queries. The actual impact will depend on search behaviour, the type of information requested and whether users continue to click through to original sources.
For publishers, the changing search environment increases the importance of original reporting, reliable information and content that offers value beyond a basic answer. For advertisers, AI-powered search may create new opportunities to reach users with specific needs, although performance will depend on relevance and conversion outcomes.
Alphabet’s spending plans add to the financial questions surrounding the transition. Reuters reported that the company’s capital expenditure could reach $195 billion to $205 billion in 2026, with further increases expected in 2027. The scale of that investment reflects the resources required to expand AI infrastructure, but it also increases pressure on the company to generate sustainable returns.
Google’s latest results therefore present two competing signals: AI-related services and cloud demand are creating growth opportunities, while the costs of infrastructure and slower Search revenue growth are attracting closer scrutiny from investors.
The company’s ability to maintain search growth, expand AI advertising and manage infrastructure costs will be central to how the market evaluates its AI strategy in the coming quarters.
