Is AI cannibalizing Google's search business?

What does that mean for the actual market reaction to this, and also Google's earnings. Like, how is the actual core business doing?

Now, at an initial glance, it all looks quite positive. Sundar announces that, hey, Google's hit for the first time ever, half a trillion dollars in annual revenue run rate.

And our cloud business, which is their business of building up compute and providing it to different types of customers that want to use that compute, the most recent business being AI, which has driven up the revenue,

has broken a record. They've brought in over $30.7 billion dollars over the last quarter, which is up 103% from last year. And this has been consistent over the last couple of quarters this year to the extent where they're probably going to hit $120 to $160 billion ARR for this single unit.

By any means, if you were just to look at this company in that lens, you would be super bullish about Google.

So why then has the stock dumped over 12% in the opening hours of this morning?

There are two reasons. The first is their core business, search. Its revenue has started to slow down.

The expectations were about 17% growth, they only achieved 12%. And the exec team basically attributed this to AI cannibalizing their search business.

Now, the reason why this is such a big deal is the majority of money to date has been made via search and advertising. That's how Google keeps majority of its capital float.

And for the first time ever, search now accounts for less than 50% of Google's revenue.

First time in history. And so people are questioning, is this a good thing or a bad thing?

Now, the optimistic lens of this is, oh no, that's just because Google's compute product is growing so aggressively. The one that I mentioned earlier that's making around $30.7 billion in three months, absolutely impressive.

But the negative view of this is that a slowing down of search revenue is a precursor or a sign or signal that AI is eating into the main core product.

And I think about a personal experience that I have when I used to use Google quite a bit every single day to kind of ask my questions and search for information.

And recently, I've just been relying on my Claude or chat GPT or muse or any other AI product that I can get my hands on because I just feel that it's more intuitive,

it knows me, and it's going to give me a much more effective answer. It can effectively outsource all the searching, scrolling, clicking on links, trying to figure out what information I'm looking like, in a singular chatbot.