Google is experiencing one of the worst days in its financial history. After releasing earnings, the stock fell sharply and closed with a huge loss. Only one company has ever lost more in a single day: Nvidia, on the day Deep Sea came out of China. The core issue is search—the business that has long paid for everything at Google. Search missed expectations, and by a lot.
When analysts asked why, Google’s business chief pointed to the company’s own AI. AI mode answers questions directly, and Google makes less money on those answers than on a traditional page of ads. In some cases, it can actually cost the company money because of the heavy spending required to build the system. Google built the technology that is now eating into its own primary revenue source.
Search Growth Goes Flat While Spending Surges
For 25 years, Google relied on one main money machine: search ads. That revenue funded YouTube, Android, AI labs, and more. This quarter, that machine essentially stopped growing. Search generated about $63 billion in the spring quarter and about $63 billion this quarter—flat. At the same time, Google is spending more cash than it brings in, one of the first times this has happened in the company’s history, as it builds AI data centers for technology that will generate less revenue.
The situation creates a trap. If Google does not push AI forward, competitors such as ChatGPT take market share. If Google does push AI, it reduces the profitability of its own search ads. Either path leaves the company, and its advertisers, paying the bill. Some advertisers say they have felt the pressure for months.
It is not entirely negative. Google Cloud more than doubled. The Gemini app passed 1 billion users. Some analysts are calling the stock a buy opportunity. Both sides of the story matter, though this is not financial advice.
A Brutal Earnings Reaction and Heavy AI Investment
Alphabet’s earnings were brutal—the first double miss in four years. The company missed last quarter and missed again this quarter. AI spending has been extreme. Long-term debt rose 479% in a year, the most Google has ever spent. Free cash flow is negative by both percentage and amount, and 2027 CapEx guidance is significantly higher. The stock dropped more than 10% after hours, with one-day declines reported around 11% and broader talk of a 13% fall that would rank among the largest post-earnings drops in the company’s history.
Berkshire Hathaway is investing an extra $10 billion into Alphabet, deepening its AI bet. Alphabet reached an agreement to sell 10 billion shares to Berkshire in a private placement. The move is part of a broader $80 billion stock announcement by Alphabet and continues a position Berkshire has been building rapidly over the past three quarters.
Search Is No Longer the Majority of Google’s Revenue
For the first time, search is less than half of Google’s money. A chart of search as a percentage of the business versus the rest of the company shows the lines crossing. The rest of the business is now larger than Google search. Some view this as positive because Google has long wanted to diversify beyond its main money machine. Cloud revenue is a key driver of the change. The cost, however, is the pressure on the core search business that has sustained the company.
Advertisers Report Declining Quality and Higher Costs
A person who spends $500,000 a month on Google ads posted that search growth was artificial and extremely unhealthy for Google’s long-term business. The post reached more than 4 million people on the same day Google had previously suffered its worst day. Search volumes are declining as legacy search is increasingly replaced by non-monetized large language model queries. Many people are turning to AI instead of traditional search.
Google’s response, according to that advertiser, has been to manufacture revenue growth through short-sighted, customer-hostile tactics. The company has charged advertisers more for lower-quality clicks, including clicks they did not want and did not approve. For years, Google used a second-price auction: if an advertiser bid $5 cost per click and the next highest bid was $1, Google charged roughly $1.01. This encouraged advertisers to enter their true maximum willingness to pay. Recently, Google moved away from that model and began charging advertisers as much as their bid and budget caps allow, regardless of other bids. It is described as a short-sighted cash grab that harms the long-term health of the advertising ecosystem and may push people toward other search providers.
Google also reduced keyword targeting precision. Advertisers once could select precise search phrases. Now, even with the strictest match settings, Google shows ads across thousands of unrelated keywords labeled as “exact match close variant.” The result is that advertisers are billed for clicks that are irrelevant to their business and their intended audience.
Google operated a benevolent monopoly for most of 25 years. The value it captured from search was only a small fraction of the value it created, supporting expectations of strong earnings growth. That is no longer the case. At the altar of AI CapEx, Google is sacrificing the golden goose. Paid click search volume has significantly deteriorated and decelerated—described as 13% paid and 5% cost per click quarter over quarter.
Gemini 4 Carbon Release and User Counting
Google tried to offset the earnings news by releasing Gemini 4 Carbon. Benchmarks look strong, and even Elon replied that it was impressive. Most people cannot actually test it yet. Critics on Hacker News noted that the Gemini app on a phone, despite high ratings, remains difficult to use effectively for real prompts. Google can claim 1 billion users in part because Gemini is woven into Gmail, search, and other Google apps. Every search that surfaces a Gemini response counts toward that total, even if users never deliberately open the Gemini app.
Meta Ads Catch Up as Search Growth Flattens
Meta ad revenue has caught up with Google search revenue. Meta ads have grown faster than Google search every quarter since Q1 2023 and are likely to surpass Google search next quarter. Google search revenue has still grown overall but has largely flattened near $63 billion over the past year. Meta is closing the gap quickly.
Why Google Held Back on Its Own Breakthrough
Google originally developed the transformer ideas that ChatGPT later scaled. When the transformer papers were published and peer-reviewed, it was fairly common knowledge. Google DeepMind led in AI for years, yet the company did not release a ChatGPT-scale product. The fear that AI would cannibalize search—exactly the outcome now visible in the revenue charts—kept Google from being the one to launch it. The current market result is the scenario the company tried to avoid.
Many users are already shifting. The host’s wife, for example, uses Gemini extensively because it is built into Google apps and is free. She rarely performs traditional Google searches anymore and is part of the cannibalization already underway. It remains to be seen how the picture changes once Google weaves ads more deeply into Gemini.
Looking Ahead
Google’s once-dominant position in search revenue is under pressure from its own AI tools and from faster-growing competitors such as Meta. The company is spending heavily on AI data centers while search revenue stays flat and free cash flow turns negative. Berkshire’s additional investment shows continued belief in the AI strategy, yet the near-term earnings reaction has been severe. Advertisers are already adjusting to higher costs and lower-quality traffic. Whether the diversification into cloud and AI ultimately replaces the old search money machine, or simply accelerates its decline, is the central question the numbers now pose.
