Alphabet’s stock dropped about 13% on Thursday after Q3 results paired slower Search growth with heavy AI spending, and paid search marketers now have a pointed question: who is funding Google’s AI transition? Search Engine Journal reported that some marketers read the results as Google protecting its revenue at advertisers’ expense. The earnings call supports part of that argument and leaves the rest unproven.
Our Oct. 29 report on the call covered the 12% rise in Search & other revenue and the executive comment that AI Mode queries monetize less. This update follows the market reaction and what advertisers are making of it.
Spending is what sharpens the debate. According to Search Engine Journal, Alphabet put $51.36 billion into capital expenditures in the quarter and posted a free cash flow deficit of $9.07 billion. Google can raise revenue by creating more ad opportunities, by earning more from existing traffic, or by doing both. Each route affects campaign performance differently. More placements could reach customers advertisers previously missed, or they could steer budget toward exploratory conversations that rarely produce quick sales. Higher click costs would demand better conversion rates just to hold returns steady.
Two marketers have made the sharpest case. Max Anderson argued that Google sustains revenue by charging more for lower-quality traffic, pointing to looser keyword matching, what auctions charge, and campaigns that overspend daily limits twofold. Daniel Koss likened the pattern to traditional media businesses that raise prices as demand falls. In his view, advertisers eventually pull spend once returns stop justifying the cost. Both made their arguments in posts on X.
Some of what Anderson describes is written into Google’s published rules, Search Engine Journal noted. Ad Rank thresholds can produce substantial cost per click even when no competing ad sits directly below yours, so a high price alone does not show that Google abandoned its auction model. Daily budgets are defined as averages, and a campaign may spend as much as double the average on any single day, within monthly caps. Spending $2,000 on a day when the average is set at $1,000 stays inside those limits.
Compliance is not the same as value, though. A campaign can follow every rule and still pay for traffic that yields few qualified leads. The earnings figures also do not show that Google altered its auction or budget mechanics to cover AI costs. Anderson and Koss describe how spend feels from the advertiser side, and the call offers no data that settles it either way.
The evidence Google has offered is narrow. The company cites comparable click rates between paid and unpaid product listings inside AI Mode as a hint that ads there work. That confirms people click. It does not reveal whether those visitors buy at the same rate as people arriving through classic Search, which is the comparison advertisers need to judge what they are buying.
Reporting makes the gap harder to close. Google folds AI Mode performance into standard campaign and search terms reports, so advertisers cannot cleanly compare acquisition cost, conversion rate, or lead quality against other Search traffic. The practical result is a measurement problem rather than a proven price increase: advertisers fund placements they cannot analyze on their own while availability expands.
Over the next ninety days, budget owners should judge AI Mode exposure by downstream sales and lead quality, not click-through rate, and compare broad match and AI Max campaigns against exact-match baselines before raising spend. Until Google offers separate AI Mode reporting, the burden of proof sits with the vendor taking the larger share of the budget.
Based on reporting from Search Engine Journal, published October 29, 2026.
