Is AI Killing Google Search? It Might Be Doing the Opposite

One of Google’s lines of defense has been its “AI Overview” tool, whereby users can see answers generated by its Gemini AI model hovering above their traditional search results. Alphabet GOOGL -0.58%decrease; red down pointing triangle Chief Executive Sundar Pichai said Wednesday that this tool now has over 2 billion monthly users, up from 1.5 billion users in its last quarterly update. Google is also rolling out an “AI Mode” that competes more directly with chatbots.

“We see AI powering an expansion in how people are searching for and accessing information,” Pichai said in a call with analysts, adding that AI features “cause users to search more as they learn that Search can meet more of their needs.”

Independent analyses suggest Google’s AI search strategy is indeed having an impact. Search impressions—the number of advertiser links that show up in searches, even if they aren’t clicked—grew by 49% in the year since the overviews were launched, according to a May report from BrightEdge, a search-engine-optimization firm.

Those trends bode well for a search advertising business that accounts for more than half of Alphabet’s overall revenue. The company said Wednesday that search revenue rose 12% from a year earlier in the second quarter to $54.2 billion, a record. Analysts surveyed by FactSet had expected $52.9 billion. The company’s shares rose about 3% in after-hours trading.

This outperformance underlines Alphabet’s continued ability to monetize its search traffic. It has also helped that the advertising market has been relatively healthy in the quarter, despite some hiccups from tariffs and an uncertain macroeconomic outlook that had clouded the picture in April. Evercore ISI analysts said in a note this month that market checks showed ad budgets rising year-over-year in the quarter after a wobbly start.

The real test of Google’s search-engine resilience still lies in the future. One issue is that while AI overviews are boosting how many links users see, industry metrics show people aren’t actually clicking on revenue-generating links as much. When AI overviews give people the information they seek, they don’t need to.

That is a puzzle Google will have to solve to keep itself on top. If it can show advertisers that they are getting a sufficient return on their spending through high-quality AI answers, the overview tool may lead to more spending and more revenue for Google.

The other big unknown is how new AI-infused web browsers from the startup Perplexity and reportedly from OpenAI might change how people get information. Those challenges are in their infancy, and could make inroads against Google’s Chrome browser. The impact to Google’s revenue, if there is one, would only show up at a later stage, when the new entrants start building a substantial ad business tied to their software.

What is clear is that Google has many tools with which to respond to the challenges.

The company can modify Chrome to better compete against new entrants. It can imbue Gemini into other products. It can come up with software that others can’t easily replicate, such as new AI-driven results in its “Circle to Search” feature on Android phones, where users can circle anything on their screens and get feedback about it.

Google also has a record of making defensive moves when it needs to. When search traffic was poised to shift to mobile phones two decades ago, Google acquired Android and developed its mobile-phone operating system. As Apple’s AAPL -0.12%decrease; red down pointing triangle iPhones became ubiquitous, Google started paying Apple billions of dollars to make its search engine the default in the company’s Safari browser. And when the AI boom kicked off nearly three years ago, Microsoft’s MSFT 0.12%increase; green up pointing triangle early AI push raised concern about Bing taking market-share from Google. That led Google to splash out on AI computing, and Microsoft didn’t make much of a dent.

Google’s success has helped it build a cash pile it can deploy to keep up the defense. On Wednesday, Pichai said he was upping the company’s 2025 capital spending to $85 billion from an earlier plan of $75 billion. Chief Financial Officer Anat Ashkenazi said the company would spend even more next year.

There is no doubt that Google faces more serious threats to its search dominance than it has in a long time, not to mention unprecedented antitrust scrutiny across the globe.
But the company is chronically undervalued compared with its peers. Based on its performance so far in the AI age, it looks likely to come out far less scathed than many skeptics believe.

Write to Asa Fitch at asa.fitch@wsj.com