Here I was planning a perfectly lazy Friday, but Google had to go and sh*t the bed. Given I wrote a book that came out right after the company went public, I can’t ignore the fact that GOOG just dropped more than 12 percent yesterday – erasing nearly half a TRILLION dollars from its market cap along the way. That’s 20 times more than Google’s market cap on the day it debuted 22 years ago. Oof.
GOOG is not bouncing back this morning – it’s down another 1+ percent, and its peer companies are also taking it on the chin. Google’s steep decline wasn’t an anomaly. Wall Street has finally seen proof what we’ve all been talking about for years: Google’s core business is showing vulnerability in the transition from traditional search to AI-driven answer engines.
Google’s Q3 numbers tell the story of a legacy revenue stream that is rapidly slowing. Search revenue, which includes Google’s relatively new AI Mode products, grew 12 percent this past quarter, compared to 17 percent last quarter, and 19 percent in Q1. Search is still a behemoth, accounting for nearly 50 percent of GOOG’s total revenue. But when it decelerates quickly, Wall Street is going to freak out.
But should it? I’m not a market timer nor a professional stock picker, but I know a (complicated) overreaction when I see one. Let’s think out loud about what’s really going on.
- Along with Nvidia, Microsoft, Oracle, and now even Amazon and Meta, Google has become a proxy for AI overall. If the market is nervous about “the AI trade,” those nerves are going to show up in GOOG’s stock price, independent of quarterly perturbations in Google’s performance. And the market is very, very nervous right now.
- Wall Street is torn between greed – AI will be a huge winner! – and fear: AI companies have over-invested, and there’s no way those investments can pay off in a future the market can comprehend. That’s turned traditionally stable companies into volatile meme stocks.
- There’s a sword of Damocles hanging over the entire market right now in the shape of the Anthropic IPO. Everyone I have spoken with thinks the company will get out – and become the single largest IPO in market history. But history does have a way of repeating itself: AT&T Wireless once held the crown as the largest IPO in history, reaping more than $10 billion in proceeds just as the world was waking up to the importance of broadband wireless connectivity. The date of that IPO? The very same month that now marks the dot com crash: April of 2000.
- Google has begun to integrate advertising into its AI Overview and AI Mode, and overall search queries are healthy and growing quickly. But so far, Google has not been able to monetize its AI search queries at the same rate as its legacy search business.
- It’s early. Google fully integrated AI Mode into its core search product less than two quarters ago, and its AI ad units are even newer – and until recently, only available in the US. As part of its disastrous Q3 earnings report yesterday, Google announced plans to roll out AI ads to more than a dozen new markets.
- Google is good at this. The company has spent more than two decades figuring out how to dominate digital advertising. It may have been too cautious over the past year, but the company has learned what does and doesn’t work for advertising inside its AI surfaces. If it wishes (or needs) to, it could crank the volume to eleven over the next few quarters.
- Finally, let’s keep this historic dip in context. Google last touched $278 a share just seven months ago – in March of 2026. The stock is still up 90 percent over the past five years. There’s still plenty of room for the company to grow – or to tank along with the rest of the tech-heavy market.
I’m in the business of making predictions, so here’s one for this fine Friday in October: Over the next two quarters, Google will deliberately build up AI-related advertising revenues around the world, introducing new markets, new ad units (agent facing ads, anyone?), and robust profits from inside its AI Mode and AI Overview surfaces. Because of that, Google’s Q1 2027 earnings call will spark a rally in GOOG’s stock, and quite possibly the market overall.
Unless….well, there is a scenario that makes anything Google might do irrelevant: A market crash along the lines of what we saw in Spring of 2000 or Fall of 2007. If that happens, it won’t matter if Google can wring more profits out of AI search. But if it does, I have just one piece of advice: Buy that dip. GOOG was trading at around $14-$17 in October of 2007. Sure wish I had pushed in back then!
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