New Delhi: Google will begin running ads inside AI Mode, its conversational search experience, in 10 countries including India, along with Australia, Canada, Kenya, Malaysia, New Zealand, Nigeria, Pakistan, the Philippines and Singapore. The ads will be clearly labelled "Sponsored", the company said. Brazil, Mexico and the United Kingdom follow in the fourth quarter of 2026.
The move lands alongside a soft quarter. Alphabet's revenue rose 25% to $127.6 billion, short of the $128.2 billion analysts expected. Net income fell 25% to $26.17 billion and earnings per share came in at $2.67 against a $3.02 estimate.
Advertising revenue grew 11% to $82.01 billion, about $1.41 billion below forecasts. Search revenue rose 12% to $63.35 billion, slowing from 17% growth in the previous quarter, and YouTube advertising grew 9.2% to $11.21 billion.
Chief business officer Philipp Schindler tied part of the slowdown to the product itself. "The strong growth in AI overviews had an impact because of the lower monetization we were seeing in AI mode," he told analysts, adding that ad experiments had shown promising results and were now being scaled.
Cloud was the bright spot. Google Cloud revenue more than doubled to $30.71 billion and operating income tripled to $11.1 billion, helped by sales of the company's in-house TPU chips. Free cash flow, though, was negative $9.07 billion, the second straight quarter in the red. Capital expenditure for the quarter was $51.4 billion against $24 billion a year earlier, and chief financial officer Anat Ashkenazi said spending would rise significantly again in 2027.
Shares fell more than 10% in extended trading. Alphabet also booked an $8.7 billion loss on equity investments, which it attributed to its stake in SpaceX.
Hours before the results, Google announced Gemini 4 Carbon, its newest frontier model. The company says it delivers state-of-the-art performance in vulnerability discovery, exploitation and patching, and generates secure code at more than twice the success rate of Gemini 4 Argon on internal benchmarks. It ranks first on the Artificial Analysis Intelligence Index at 59 and is priced at $2 per million input tokens and $10 per million output tokens. Access is limited for now to a subset of cyber defenders under the Fairwind Program.
Chief executive Sundar Pichai said queries in AI Mode are on average three times longer than traditional searches and that one in five AI Mode searches globally uses voice, images or documents. Visual searches have crossed 50 billion a month, he said.