Alphabet earnings miss reflects first real sign that AI is taking a bite out of search

Sundar Pichai, CEO of Alphabet, during the Google I/O Developers Conference in Mountain View, California, May 19, 2026.

David Paul Morris | Bloomberg | Getty Images

In Alphabet's across-the-board earnings miss, one segment stood out above all else: search.

Revenue in the search and other segment grew 12% from a year ago to roughly $63 billion, but came in below estimates for the second straight quarter. At the same time, Google said search query growth on the platform was the strongest it's been in five years.

The gap between usage and revenue within the search giant's flagship business is becoming harder to dismiss as more people turn to artificial intelligence bots and agents, including tools offered by Google. Since the early days of ChatGPT, analysts have predicted that traditional search will get eclipsed by AI, and warned that Google will have to figure out new ways to make money. While search remains a massive business, early signs of a shift are appearing.

"These things are going to be a force," Deepwater Asset Management's Gene Munster told CNBC's "Fast Money" after the earnings report, referring to new AI-powered services. Munster said that if "personalized bots" take off, "that will become for a lot of people the starting point of commerce, which impacts where Google is."

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Alphabet executives said foreign exchange was the biggest factor behind the deceleration in search revenue in the period, and said the currency impact would be even greater in the fourth quarter.

The stock plummeted about 10% in extended trading, reflecting the weaker-than-expected earnings report and negative free cash flow of $9 billion for the quarter, three times the estimated deficit. In the second quarter, Alphabet's free cash flow went negative for the first time in its history as a public company, at $5.9 billion.

The company made what Schindler called its “biggest update to product listing ads in a decade” during the third quarter, adding new AI capabilities.

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