Episode summary
Google Stock: Why AI Mode Earns Less Than Search
Summary
Google’s sell-off was framed as an incumbent’s dilemma rather than a collapse in demand. The host argued that ChatGPT, Anthropic’s Claude, and other chatbots have not taken away Google’s search usage; instead, total query activity is growing, with search and other up 12% year over year and query growth at a five-year high. He also pointed to the Gemini app reaching 1 billion users and Google Services operating margin rising to 40.7% from 38.5% as signs that the business is still expanding and holding profitability.
The pressure point is monetization. The host said Google’s own AI mode appears to earn less per interaction than classic search, so even if usage rises, revenue per query can weaken. He tied the stock’s drop to search growth slowing from 19% in Q1 to 17% in Q2 to 12% in Q3, below the market’s expected 14% to 15% range. In his view, the key question is whether Google can raise AI monetization to something close to search monetization.
He stayed bullish on Alphabet despite the risk, saying he owns the stock and sees long-term value in Google Services, Google Cloud, Waymo, cash, and private equity stakes. His bottom line was that the market is discounting the company while the business case for AI monetization is still being written.
Key takeaways
- The host said Google is not losing users to chatbots; total query volume is still growing and search plus AI activity hit a five-year high.
- He argued the stock sold off because search growth slowed to 12% in Q3, below the market’s 14% to 15% expectation.
- The host said Google Services operating margin rose to 40.7% from 38.5%, showing the core business is still highly profitable.
- He said AI mode likely earns less per query than classic search, so Google’s challenge is to lift AI monetization without hurting usage.
- The host remained bullish on Alphabet, saying the market is underestimating the value of Google’s assets and long-term AI economics.
Notable quotes
“the dilemma is no longer about losing users, it's about earning less on each user that uses AI mode instead of just Google Search”
“Search and other grew 12% and year-over-year query growth was the highest in 5 years”
“Google Services operating margin rose to 40.7% from 38.5%”
“But because AI inside of Google is growing fast and AI mode earns less money, it's really hammering their result”
“How do we monetize AI as well as we monetized search, basically”
How the episode opens
Good morning. This is Dylan Jovine with Behind the Markets. Happy Thursday.
Today is Thursday, November 5th. And you know, as I was telling my friend the other day, we are all winners in this election because we don't get any ads anymore. Woohoo!
I'm done with the ads. Anyway, today I'd like to talk about Google versus AI, specifically Anthropic and OpenAI. Apparently, there are some college kids who take business classes who watch this channel, I've come to learn.
And when I talked about the incumbent's dilemma, I got some emails, some requests, some private messages about how to, you know, really talk about that or how to think about that. So, you know, when you're Google and you see OpenAI and ChatGPT come along, ChatGPT and Anthropic's Claude come along and other things, you say to yourself, "Oh my goodness, they can take my search business away. As an incumbent, what is my competitive response to protect my business here?
How do I not only protect my business, but also attack my opponent? So, the question was, would these chatbots take all of search away from Google? And as we dive further into Google's numbers, Alphabet is the is the entity's name, you can see that Google is winning the usage fight, meaning that they're not losing their search business, but you're starting to see that their solution, their AI solution in protecting their franchise, counter-attacking, is starting to cost them money.
And this is a very good case for business. They're going to teach this in business school. So, the dilemma is no longer about losing users, it's about earning less on each user that uses AI mode instead of just Google Search.
So, I went through the numbers. What's working so far? Usage is growing faster than it has in years, and I have some facts and figures here.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- ai mode monetization
- search growth deceleration
- chatbots competitive impact
- google services margins
- alphabet valuation
Companies and tickers mentioned
- GOOGL
- GOOG
- Alphabet
- OpenAI
- Anthropic
- Waymo
Watch the episode
Watch “Google Stock: Why AI Mode Earns Less Than Search” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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