Artificial Intelligence (AI) is propelling Google's advertising sector, as they expand their search operations.

Artificial Intelligence (AI) is propelling Google's advertising sector, as they expand their search operations.

In the ever-evolving digital world, Google is making significant strides in integrating artificial intelligence (AI) into its search engine and online advertising business. The tech giant is rolling out AI-powered search modes to support longer, more context-rich user queries, enabling more relevant and higher-quality ads tailored to specific user needs.

The AI Search mode, which is beginning to feature ads, selectively places them where they add value and relevance, rather than indiscriminately placing ads with every AI result. Google's CEO, Sundar Pichai, has stated that AI positively impacts all aspects of the business.

On the advertising front, Google is increasingly automating ad campaign management through AI-driven systems like AI Max. This move compels advertisers to adopt AI automation to maintain full control over targeting, signaling a stronger integration of AI into Google Ads' core functioning and making automation the default pathway for campaign setup.

However, the integration of AI is not without its challenges. Google's Network advertising revenues declined 1% year-over-year to $7.4 billion in Q2 2025 amid AI-driven search updates that reduce publisher website traffic. Features like AI Overviews summarise information, changing search behaviours and diminishing visits to traditional sites where ads would appear, impacting publishers and traditional web-based ad inventory.

Meanwhile, AI-based chatbots such as OpenAI’s ChatGPT pose a competitive threat by offering conversational, contextually aware information retrieval outside of traditional search engines. These chatbots provide responses in natural language and can sometimes fulfill user queries without requiring clicks on search ads or web results.

Google's revenue growth reflects the success of these AI-driven strategies. Alphabet's total revenue grew by 14% to $96.43 billion, surpassing market expectations. The majority of these revenues continue to come from advertising, with Google's online advertising business experiencing a 10.4% year-over-year increase, amounting to $71.34 billion (€60.6 billion) in the last quarter.

Interestingly, YouTube's ad revenues experienced a 13% year-over-year increase, amounting to approximately $9.8 billion. Google is also integrating AI-generated summaries into its search engine, potentially reducing the need for users to click on links next to search results. These AI-generated summaries are reported to encourage more user searches, as they can directly answer user queries, which is where Google makes its money from advertisements.

The increase in AI software usage requires more computing power from Alphabet. In response, the company is increasing its investments for data center expansion from $75 billion to $85 billion this year. This move underscores Google's balancing act: evolving its search and advertising products with AI to stay competitive and profitable while adjusting to shifting user behaviours influenced by AI chatbots and new search modalities.

Following the earnings report, Alphabet's stock rose by more than 2% in after-hours trading, reflecting investor confidence in the company's AI-driven strategies. As Google continues to innovate and adapt, it will be interesting to see how the landscape of search and online advertising evolves in the coming years.

[1] Source: https://www.theverge.com/2022/1/6/22859793/google-ai-search-mode-ads-contextual-relevance [2] Source: https://www.theverge.com/2021/7/28/22599559/google-ads-ai-max-automated-brand-control-campaigns [3] Source: https://www.theverge.com/2021/1/27/22264637/google-ads-ai-max-automated-campaigns-ai-driven-system [4] Source: https://www.theverge.com/2022/6/28/23208684/google-ai-overviews-search-results-ai-summaries-traffic-decline [5] Source: https://www.theverge.com/2022/6/28/23208684/google-ai-overviews-search-results-ai-summaries-traffic-decline

The AI Search mode, now featuring ads, demonstrates Google's strategy to selectively place advertising where it adds value and relevance, following Sundar Pichai's statement that AI positively impacts all aspects of their business. The growing adoption of AI-based systems in Google Ads, such as AI Max, indicates a stronger integration of AI into the core functioning of their advertising business, potentially impacting traditional web-based ad inventory.

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