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Alphabet shares fell 12.6% in a record one-day loss for the company as investors weighed heavy AI spending and signs that its AI Mode earns less than traditional search. Reddit shares dropped 15% after it reported weaker search traffic and warned daily users could fall by a low double-digit percentage in the fourth quarter. The developments point to a common strain: AI-driven changes to search are challenging both the platform that answers queries and publishers that depend on search referrals.
Alphabet shares fell 12.6% on Thursday, wiping out about $500 billion in market value, while Reddit stock dropped 15% after its earnings report. The companies’ separate disclosures exposed a shared pressure: Google said its AI Mode generates less revenue than traditional search, while Reddit reported a meaningful decline in search traffic and warned daily users could fall by a low double-digit percentage in the fourth quarter.
Alphabet’s selloff came as investors focused on the cost of its AI infrastructure expansion. The company plans to spend up to $205 billion on capital expenses this year and has indicated spending will be higher in 2027. It also reported negative $9 billion in free cash flow, with the decline accelerating from the previous quarter. The reported figures help explain investor concerns, but they do not by themselves establish how quickly the spending will produce returns.
On an earnings call, Google chief business officer Philipp Schindler said increased use of AI Mode was one reason search revenue growth had slowed even as query volume increased: AI Mode makes less money than traditional search. Search and related advertising remained a large business, generating $63.35 billion in revenue, up 12% year over year. That growth was slower than the 19% reported in the first quarter and 17% in the second, according to the source report.
Reddit said search traffic had fallen meaningfully and projected that daily users could decline by a low double-digit percentage in the fourth quarter. CEO Steve Huffman said the company would increasingly require people to log in to access Reddit. He cited improved advertising signals, higher engagement among logged-in users, protection of Reddit’s data and adaptation to regulations as reasons for the change. The report connects both companies’ announcements to a shifting online-search economy, but they concern different measures: Google’s monetization and Reddit’s referral traffic and user outlook.
AI Search Pressures Both Sides
The announcements matter because they put pressure on two sides of the online information chain. Google is investing heavily in AI features designed to answer more queries within its own products, but its business officer said AI Mode currently earns less than traditional search. Publishers and platforms such as Reddit, meanwhile, rely in part on people finding their content through search and visiting their sites.
The figures do not prove that AI search alone caused either company’s stock decline or that the same trend affects every publisher. They do show why investors and web businesses are watching how users move from search results to AI answers. If more queries are handled on search platforms, businesses that depend on referral visits may receive less traffic; if AI features monetize differently, search companies may also need to adapt their revenue model. The long-term effect on advertising, publishers and user behavior remains unsettled.
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From Search Referrals to Answers
For years, Google search served as a route from a user’s question to a publisher’s website. Google gained advertising revenue from search results, while publishers could earn from visitors sent to their pages. Google has increasingly kept users on its own results pages by providing answers directly, first through features such as AI Overviews and now through AI Mode. The source report says Google had previously argued that AI answers encourage deeper searches and lead to higher-quality clicks; the current revenue disclosure complicates that argument for AI Mode.
Reddit benefited from search referrals as Google highlighted discussions and forums in results. The source report says Google reportedly agreed to pay Reddit $60 million a year to license its data after Reddit restricted bot access. That arrangement illustrates the value of Reddit’s discussions to AI and search products, but licensing data does not necessarily replace traffic from people visiting Reddit. The report also notes a U.S. antitrust ruling against Google’s conduct in the advertising market; it does not describe that ruling as having dismantled Google’s market position.
“It is better for our business because we will have more signals for ads targeting, and being logged-in leads to higher engagement generally.”
— Steve Huffman, Reddit CEO, in a shareholder letter
The Scale of the Shift
It is not yet clear how much of Reddit’s traffic decline is attributable to Google search, how long it may last, or whether users will respond to the planned login requirements by creating accounts or leaving. Reddit’s low double-digit daily-user projection is an outlook for the fourth quarter, not a confirmed outcome.
For Google, the source report does not give a precise revenue figure for AI Mode or quantify how much it contributed to the slowdown in search growth. It also remains unclear whether improvements to advertising or changes in user behavior will allow AI Mode to earn as much as traditional search over time. The companies’ stock moves reflect investor reactions, not a settled measure of the long-term effects of AI search.
Upcoming Results and User Changes
Investors will look for further detail from Google on AI infrastructure spending, free cash flow and the revenue performance of AI Mode in subsequent financial updates. Reddit’s next updates can show whether its search traffic and daily-user outlook develop as projected, and whether its expanded login push changes engagement or advertising results.
The immediate milestone in the source report is Reddit’s warning about a possible daily-user decline in the fourth quarter. Until the companies provide more data, the central question is whether AI search can support a sustainable business for platforms while leaving enough traffic and value for the sites whose material appears in search and AI products.
Key Questions
Why did Alphabet shares fall?
The source report says investors were concerned about Alphabet’s planned AI infrastructure spending and negative free cash flow. Google’s business chief also said AI Mode earns less than traditional search, while search revenue growth had slowed.
Why did Reddit shares drop?
Reddit shares fell 15% after the company reported a meaningful decline in search traffic and said daily users could decline by a low double-digit percentage in the fourth quarter.
What is Reddit changing?
CEO Steve Huffman said Reddit would increasingly push users to log in. He said accounts provide more advertising signals, generally support higher engagement, help protect Reddit’s data and assist with adapting to regulations.
Does the report prove AI search caused both declines?
No. The report identifies related pressures disclosed by the companies, but it does not establish that AI search alone caused either stock move or Reddit’s traffic decline.
Source: platformer.news
