# Google's AI answers sell for less, and the market noticed

> Alphabet fell 12.6% on Thursday, its worst day as a public company, after Google said AI Mode earns less than classic search. Reddit reported the same shift from the other side, with a million fewer search referrals a week, and chose to put its site behind a login.

- URL: https://ai-news-daily.xyz/posts/googles-ai-answers-sell-for-less-and-the-market-noticed/
- Published: 2026-10-30
- Tags: business, agents
- Author: AI-generated (this text was generated by AI; see https://ai-news-daily.xyz/about/#ai-disclosure)
- Publisher: [AI News Daily](https://ai-news-daily.xyz/)

Picture a moderator of a forum for home espresso machines, a composite invented for this article. For years she has watched one line on the community's traffic chart: visitors who typed a question about a leaking group head into Google, added the word "Reddit" to be sure of a human answer, and landed on a thread. In October the line sags. Nothing about the machines or the questions has changed. The visitors who still arrive have mostly typed the address themselves, and the ones who used to be sent by a search engine are reading a paragraph the search engine wrote.

That composite stands for a measurement, and on 28 and 29 October two companies published it from opposite ends. Alphabet reported the quarter in which Google's search business, the one that paid for the rest of the company, grew more slowly while people searched more. Reddit reported that its search referrals had fallen by more than a million a week. By Thursday's close Alphabet's Class A shares were down 12.6% at $283.82, their worst day since trading began in 2004, wiping out about $482 billion of market value, Fortune reported. The previous record fall was 11.6% in March 2020.

## What Google said on the call

Search and other revenue rose 12% in the third quarter to $63.35 billion. Analysts had expected 15%, and growth was 17% in the second quarter and 19% in the first, according to Fortune. The cause was not hidden. Chief business officer Philipp Schindler told investors the slowdown came from "lower monetization we were seeing in AI Mode", The Register reported, and he argued that many AI Mode queries are "upper funnel queries, allowing us to capture new, high-value commercial intent", and that "the majority of AI Mode queries are incremental".

The same call carried the counter-evidence. CEO Sundar Pichai said year-over-year query growth was "the highest it's been in the last 5 years". More searches, each paying less on average, is the pattern the market priced. Bank of America analyst Justin Post estimated that growth excluding currency effects slowed by three points despite the faster query growth, and put most of that down to a comparison that was two points tougher. BofA also wrote that the shift of traffic to AI Overviews was a "small headwind" in the quarter and "likely bigger" internationally, where ads in the summaries are only starting to ramp up.

Google's remedy is more advertising inside the answers. Schindler said the company is "scaling high-quality ads within AI Overviews and AI Mode to more users and queries" and "taking our monetization footprint global for the first time".

## The arithmetic of a lower multiple

Post kept his Buy rating but cut his price target to $380 from $430 and lowered the multiple he is willing to pay to 24 times earnings from 27, citing the "slowdown in high-margin search growth". Three months earlier his model had the whole company at about 22 times his 2027 earnings estimate. After the fall it stood at about 19, and core search, inside that figure, at about 10. Fortune set that beside the S&P 500 at 18.7 times and the energy sector, the market's cheapest, at 13.

Most of the gap between 19 and 10 comes from Google Cloud, Fortune explains, whose operating margin was 36.2% in the quarter, up from 23.7% a year earlier. Its revenue rose 103% to $30.7 billion. Data compiled by the site Kadoa from Alphabet's filings shows that Search made 49.7% of Alphabet's revenue in the quarter, the first time below half since the company began reporting it separately; in the 31 quarters before, the share ran between 52.8% and 62.0%. That is a derived figure, not one Alphabet states.

The bill for the rest of the story is large. Alphabet spent $51.4 billion on capital expenditure in the quarter, more than double a year earlier, and free cash flow was negative $9.1 billion, according to its earnings release as quoted by Fortune. It expects capex of about $200 billion in 2026 and $300 billion in 2027. The Register adds that Google lacks the capacity to serve all its cloud customers and has begun passing some workloads to third parties, which the company warned will dent future margins. BofA's bull case rests on the calendar: tougher comparisons last through the second quarter of 2027, "which could make Google a 2H'27 story".

## Fewer clicks, by Pew's count

How does a summary change what a searcher does? The best public measurement predates this quarter. Pew Research Center followed the browsing of 900 US adults in March 2025, covering 68,879 Google searches, of which 12,593 produced an AI summary. On pages with a summary, users clicked a traditional result link in 8% of visits; without one, in 15%. They clicked a link inside the summary itself in 1% of visits. Pew measured clicks to websites, not Google's ad revenue, and its data predate AI Mode. It shows the mechanism that publishers have blamed and that Reddit now cites in its own numbers.

## Reddit walls itself in

On its third-quarter call Reddit said search referrals dropped by more than a million a week on average in October, TechCrunch reported. Global daily users were flat at 130.3 million, but US daily users fell from 53.2 million to 50.7 million, down 2% on the year. The company warned that daily users could fall by a low double-digit percentage next quarter if the trend continues.

Revenue, meanwhile, rose 53% to $895 million and net income 74% to $283 million. Average revenue per US daily user rose 53% to $13.82. Non-advertising revenue, which includes licensing data to AI model makers, grew 35% to $48 million. Logged-in users are worth more to advertisers, and logged-out visitors are the ones a search engine sends. So Reddit will move to a mostly logged-in site, testing first in selected markets outside the US in the fourth quarter, with no date for a full rollout. CEO Steve Huffman wrote that it is "the right decision for our platform and the right decision for our business". He told reporters, as The Verge reported, "AI Mode does not drive traffic. Not for us, and not to anybody, as far as I know," and that "it used to be a traffic driver, now it's not". Reddit also says Google is "crawling us as hard as ever".

That last remark points to a dispute with a long fuse. Publishers have been asking for years to be paid for the content that machines read. On 15 September Cloudflare introduced a "Disallow AI Training" setting that lets sites remain in search while refusing training by crawlers that do both jobs, and said Apple, Google and Microsoft honor or have committed to honor it. Its figures for its customers' sites: fewer than 1% block search bots, while 17% enable some mechanism to block training. Cloudflare said controlling summaries is next, with a goal of letting owners set how much content goes into them by early next year.

## What the numbers do not settle

The causal story is the companies' own. Google says AI Mode monetises less, and BofA calls AI Overviews a small headwind so far. A Pivotal Research chief executive quoted by Fortune says the bears will read this as the first quarter AI "seriously" hurt search; that is a prediction. The Register's account of the stock's fall differs from Fortune's in timing and in a few figures, because it was written on the day of the results; this article uses Fortune's closing numbers. And Reddit's decline in users may owe something to its own ranking in search, which Huffman raised when he said machine-translated pages are ranked lower.

What is documented is the shape. A company with $63 billion a quarter in search revenue told its investors that the new format earns less per answer than the old one, and chose to push ads into it faster. A company that depended on that search traffic told its investors that it is leaving the open web to keep its data and its best users.

The moderator's chart does not name a cause, and neither does Alphabet's. She keeps the forum open, because the people who stay are the ones who answer questions. What she no longer knows is who will find the next one, or what a question is worth once an answer has been written before anyone asks.

## References

- Cloudflare (2026). *Accountable mixed-use AI crawlers and the Disallow AI Training setting*. https://blog.cloudflare.com/accountable-mixed-use-ai-crawlers/
- Kadoa (2026). *Google Search below half of Alphabet's revenue*. https://www.kadoa.com/companies/insights/google-search-below-half
- Lichtenberg, N. (2026). *Alphabet just had its worst day as a public company. BofA now values Google search at a lower multiple than fossil fuel stocks*. Fortune, 29 October. https://fortune.com/2026/10/29/alphabet-worst-day-google-search-valuation-energy-sector-bofa/
- Peters, J. (2026). *Reddit CEO says Google's AI modes do not drive traffic*. The Verge, 29 October. https://www.theverge.com/tech/1022848/reddit-ceo-google-ai-mode-traffic
- Pew Research Center (2025). *Google users are less likely to click on links when an AI summary appears in the results*. https://www.pewresearch.org/short-reads/2025/07/22/google-users-are-less-likely-to-click-on-links-when-an-ai-summary-appears-in-the-results/
- The Register (2026). *Google struggles to make AI Mode searches pay*. 29 October. https://www.theregister.com/ai-and-ml/2026/10/29/google-struggling-to-make-ai-mode-searches-pay/5306181
- TechCrunch (2026). *As search traffic dries up, Reddit announces it's shifting to a logged-in experience*. 29 October. https://techcrunch.com/2026/10/29/as-search-traffic-dries-up-reddit-announces-its-shifting-to-a-logged-in-experience/