For the First Time, Search Brings In Less Than Half of Google’s Revenue

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Search is no longer the main business at Google. Alphabet reported its third-quarter results on Wednesday evening, with revenue up 25 percent to $127.6 billion. For the first time, less than half of that came from „Google Search & other“: The search unit brought in $63.4 billion, or 49.7 percent. The rest, just over 50 percent, came from cloud, YouTube, subscriptions, hardware and the ad network.

Cloud Doubles

Google Cloud is the main reason for the shift. According to Alphabet’s press release, the unit grew 103 percent to $30.7 billion and now accounts for almost a quarter of total revenue. Demand for A.I. infrastructure and A.I. solutions for businesses is driving that growth. What is new is that Google now sells its in-house A.I. chips (TPUs) to customers as complete systems. Alphabet called the TPU sales a „meaningful contributor“ to growth. According to cloud chief Thomas Kurian, nearly 100 customers now use TPUs.

The cloud unit’s backlog stands at $561 billion, according to the earnings call. Just over half of it is expected to turn into revenue over the next two years.

Here is how revenue broke down in the third quarter:

A year earlier, search accounted for 55.3 percent of revenue, and in the second quarter of 2026 it accounted for 52.8 percent. Besides classic web search, Google counts ads in Gmail, Maps and the Play Store as part of „Search & other.“

Search Growth Slows

Search revenue still rose 12 percent, but that is well below the previous quarters (17 percent in the second quarter and 19 percent in the first). Compared with the previous quarter, search revenue was practically flat. According to Google executive Philipp Schindler, the main reasons were currency effects, weaker ad budgets from retailers in the Asia-Pacific region and a strong prior quarter boosted by the soccer World Cup.

Mr. Schindler named one more factor on the earnings call: A.I. Mode in Google Search is growing quickly but brings in less ad money per query. He did not say how large the effect is. At the same time, Google’s chief executive, Sundar Pichai, stressed that the number of search queries is growing at its fastest pace in five years. According to Alphabet, the Gemini app has now reached one billion users, and its in-house A.I. models process nearly 32 billion tokens per minute.

How Google Squeezes More Money Out of Search

The American entrepreneur Max Anderson has a less comfortable explanation for why search revenue is still growing despite competition from A.I. He says he has spent more than $500,000 a month on Google ads for years. In a widely shared post on X, he argues that search growth is artificial and unhealthy for Google in the long run. Because traditional searches are increasingly lost to A.I. chatbots that carry no ads, Google is making up the difference with customer-hostile tactics aimed at advertisers, Mr. Anderson says. He gives three examples:

• Auctions: For decades, advertisers on Google paid just one cent more than the next-highest bidder (a second-price auction). According to Mr. Anderson, Google has quietly abandoned this principle and now charges as much as bids and budgets allow.
• Keywords: Even with the strictest „exact match“ setting, he says, Google shows ads for thousands of unrelated search terms and labels them as „close variants.“ There is no way to turn this off.
• Budgets: Campaigns with a daily budget of $1,000 suddenly spent more than $2,000 a day, almost entirely on worthless search terms, he says, and Google offers no refunds.

Mr. Anderson sees this as the behavior of a company whose core business is shrinking and that needs to dress up its quarterly numbers so Wall Street keeps funding its huge A.I. spending. In his view, Google is sacrificing the goose that lays the golden eggs for A.I.

The accusations are not entirely baseless. In the U.S. antitrust trial against Google, Jerry Dischler, who ran Google Ads at the time, testified in 2023 that Google had adjusted auctions and reserve prices to hit revenue targets, by about 5 percent on average and by up to 10 percent for some queries. In 2024, Judge Amit Mehta concluded that Google charges supracompetitive prices for search text ads. And according to an analysis by the agency Smarter Ecommerce, about 29 percent of exact match volume was recently extended to additional search terms by Google’s A.I. Max feature.

Pushback From the Ad Industry

The advertising analyst Eric Seufert disagrees. He wrote on X that every claim in Mr. Anderson’s thread is either false or mischaracterizes Google’s policies. Mr. Anderson’s claim of declining search volumes does not square with Google’s statement that queries are growing at their fastest pace in five years. The doubled daily budget is not a secret change either: Google’s help pages have said for years that campaigns can spend up to twice their average daily budget on individual days. Over a month, Google’s own rules cap charges at 30.4 times the daily budget, and anything above that is credited back.

Record Revenue, Lower Profit

Investors did not like the numbers. The stock fell about 10 percent in after-hours trading. Net income dropped to $26.2 billion from $35 billion a year earlier. The core business was not to blame, though, as operating income rose 30 percent to $40.6 billion. Instead, losses on stakes in other companies weighed on the result, after those holdings had produced a gain worth billions a year earlier. Earnings per share came in at $2.12, well below analysts‘ expectations.

On top of that come enormous investments. In the third quarter alone, Alphabet spent $51.4 billion on data centers, servers and chips. For the full year, the company expects to spend $195 billion to $205 billion, and spending is set to rise significantly again in 2027. Free cash flow was negative for the second quarter in a row, at minus $9.1 billion. To fund this, Alphabet issued $28.7 billion in bonds during the quarter and sold new shares. Big Tech as a whole is pouring hundreds of billions of dollars into A.I.

The Competition in Cloud

Rivals are also benefiting from the A.I. boom. Microsoft reported the same evening that its cloud platform Azure grew 48 percent. At 103 percent, Google Cloud is currently growing much faster, though from a smaller base. Amazon Web Services remains the market leader in cloud.

The Money Still Comes From Search

Despite the new revenue split, Google is far from independent of search. The profit picture looks different: Google Services, which includes search, YouTube and subscriptions, generated operating income of $39.2 billion in the quarter. Google Cloud came in at $11.1 billion. That keeps search as the company’s most important source of profit. At the same time, the numbers show that cloud has long since become highly profitable, with an operating margin of 36 percent most recently.