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- Shares in Google's parent company were down 10% in premarket trading on Thursday.
- While AI is driving more search queries, search revenue disappointed, raising concerns.
- The drop would be the biggest negative stock reaction to earnings since Google went public in 2004.
Alphabet's share price is tumbling on Thursday after it reported that Google's AI search mode isn't making as much as expected in its latest earnings.
As of around 7:20 a.m. ET, Alphabet's stock was set to open at $287.92, down 10.5% from Wednesday's close. That drop would equate to a loss of more than $400 billion from the company's market capitalization, which stood at $3.95 trillion on Wednesday.
In Wednesday's earnings call, CEO Sundar Pichai said AI helped search queries grow at the fastest year-over-year pace in five years.
However, the financials are lagging behind.
Google's parent company, Alphabet, reported third-quarter search revenue of $63 billion, below analysts' estimates, and up just 1% from the previous quarter.
It came as a shock because search revenue beat estimates in each of its four previous quarterly earnings reports.
"It's worth noting that the strong growth in AI Mode queries had an impact because of the lower monetization we were seeing in AI Mode," Philipp Schindler, Google's chief business officer, said on the call.
He also announced that Google is introducing ads in AI Mode to more users, including in international markets for the first time.
The rise of generative AI has shaken up Google's core business as chatbots like ChatGPT and Claude give people an alternative way to search. While Google has its own chatbot, Gemini, and has integrated it into its search engine with AI Mode, revenue is lagging behind its popularity.
"Just like our shift to mobile over a decade ago, we are focused on building the best Search user experience, followed by monetization," Pichai said.
If the stock is down more than 9.77% when the market opens, it will be the company's worst earnings reaction day since Google went public in 2004.
"In the AI trade you need a clean story to pique investor interest. But it only matters if numbers track in the right direction," Mark Shmulik, a senior analyst at Bernstein, wrote in a note.
"Is Google an AI winner? Probably, but not today."
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