Google's Q3 2025: Contradictions Emerge in AI Overviews Monetization, Commercial Queries, and User Engagement

Date of Call: October 29, 2025

Financials Results

• Revenue: $102.3B, up 16% YOY (15% in constant currency)
• EPS: $2.87 per share, up 35% YOY
• Operating Margin: 30.5%, excluding European Commission fine 33.9%

Guidance:

• Q4 may see an FX tailwind at current spot rates but results depend on exchange rate volatility.
• Google Services advertising comparisons in Q4 will be negatively impacted by elevated U.S. election spend in Q4 2024 (notably YouTube).
• Cloud demand remains high; expect a tight demand-supply environment in Q4 and into 2026 with continued strong demand for TPUs/GPUs and enterprise AI.
• 2025 CapEx updated to $91B–$93B; expect a significant increase in CapEx in 2026.
• Depreciation growth to accelerate slightly in Q4; sales & marketing spend skewed to year-end.

Business Commentary:

• Record Revenue and AI Integration:
• Alphabet Inc. reported revenue of over $100 billion for the first time in Q3 2025, up from $50 billion in Q3 2020, marking a doubling of revenue.

• This significant growth is primarily driven by the integration and expansion of AI technologies across the company's products, such as search, cloud services, and generative AI models.

• Google Cloud Growth:

• Google Cloud revenue increased by 34% to $15.2 billion in Q3 2025, driven by strong performance in enterprise AI products and GCP.

• The growth was fueled by increased demand for AI infrastructure and models like Gemini, along with large customer deals and backlog expansion.

• AI-driven Search and Query Growth:

• AI investments in search, notably AI Overviews and AI Mode, resulted in a significant increase in overall queries, with AI Mode driving a 2x query growth from Q2 2025 to Q3 2025.

• This growth is due to users learning about AI's capabilities and the products' effectiveness in answering more queries.

• YouTube Subscription and Advertising:

• YouTube advertising revenue grew by 15% to $10.3 billion, with subscriptions showing strong growth, led by YouTube Premium and Music.
• The growth in advertising revenue is attributed to robust watch time growth in shorts and living room content, aided by AI-powered features and stronger monetization strategies.

Sentiment Analysis:

Overall Tone: Positive

• CEO: "This was a terrific quarter... We delivered our first ever $100 billion quarter." CFO: "Consolidated revenue reached $102.3 billion, a 16% year-over-year increase... Net income increased 33% to $35 billion." Strong Cloud growth: "Cloud revenue increased by 34%... Cloud operating income increased by 85%."

Q&A:

• Question from Brian Nowak (Morgan Stanley): The first one maybe for Philipp or Sundar. It's on agentic e-commerce and agentic travel. There's a lot of external Wall Street discussion about agentic e-commerce potentially monetizing at a lower rate than search. So the question is what factors are you most focused on to sort of ensure a smooth transition for your search business and for your advertisers as you move over to a more agentic world? And the second one, Sundar, is on Waymo. How far are we from an integration of Waymo into more of the core Gemini capabilities and the users on the platform taking your user data of where I'm going, what hotel I'm staying at, what airport I'm staying at and having integrated that into Waymo? If you can actually have users use their profiles to pre-schedule Waymos, how far off is that? What do we have to do?
  Response: Agentic experiences are seen as additive to search and shopping; focus is on seamless UX, partner integration and commerce plumbing (agentic checkout, PayPal partnership, open protocols) to benefit merchants and users. On Waymo, integration with Gemini is being explored and expected to yield enhanced in‑car experiences with new features coming in 2026.

• Question from Douglas Anmuth (JPMorgan Chase & Co): Philipp, maybe you can just talk more about some of the drivers of the core search strength. And I guess, in particular, when you think about AI Overviews and AI Mode, we know that query growth is accelerating. But can you help us understand from there kind of what happens in terms of clicks per query and conversion rates and pricing in these AI-driven search formats? And then, Anat, can you talk about where you see opportunities in the core cost base as you look to make room to absorb the rapid growth in infrastructure and depreciation going forward?
  Response: AI Overviews and AI Mode are expanding queries while monetization for AI Overviews is approximately in line with prior formats; paid clicks +7% YOY and CPCs +7% YOY. Efficiency levers include moderating headcount growth, optimizing real estate and infrastructure build, and using AI-driven productivity (e.g., AI-assisted code) to offset rising depreciation.

• Question from Eric Sheridan (Goldman Sachs): Sundar, when you think about your custom silicon efforts across the organization, can you reflect a little bit about the opportunity set you see with each passing generation of custom silicon both in terms of driving operating efficiencies inside the organization and potentially increased monetization efforts around those outside of the organization? Second question would be for Philipp. Obviously, we could see the YouTube advertising revenue number in the reported results. Can you reflect little bit about the scaling of the subscription side of YouTube offerings and how the 2 parts together maybe represent an interesting framework in thinking about the monetization side of YouTube increasingly being a mix of both ads and subscription?
  Response: Custom silicon (TPUs) and full‑stack AI infrastructure are driving strong demand, supporting Cloud revenue and operating margin expansion and enabling external monetization via differentiated offerings. YouTube monetization is a "twin engine"—ads plus growing subscriptions—where subscribers deliver meaningfully higher gross profit versus ad‑only users.

• Question from Mark Shmulik (Sanford C. Bernstein & Co.): Sundar, with the strong adoption of Gemini, AI Mode and Overviews across the user base, are there any meaningful differences to call out kind of around the behavior and depth of engagement for those users across the entire Google ecosystem. And then, Philipp, I know we kind of asked this most quarters, but I'm curious kind of what some of the adoption you've seen around AI Overviews and Mode, how you see the economics of search evolving with the higher commercial and total query volume and how it kind of compares against the incremental cost to deliver these results.
  Response: Users show high engagement with AI products: AI Mode has a passionate core of adopters plus casual users and strong retention; AI Overviews scale broadly. Economically, AI Overviews currently monetize at roughly the same rate as prior formats; AI Mode remains under testing before broader monetization.

• Question from Michael Nathanson (MoffettNathanson): Philipp, it's clear that when people use AI Mode, the query length is much longer. Could you talk about how that longer length may be impacting your ability to drive ROAS and what you're seeing in terms of some of the early -- the benefits of maybe longer query length? And then, Anat, you came to Alphabet from a pharmaceutical company. You've been there more than a year. Can you talk a bit about how you're working to look at ROIC internally? And what early signs are you seeing that gives you confidence that the spending is really driving better returns longer term?
  Response: On AI Mode, ads are being tested but it's too early to draw conclusions on ROAS from longer queries. On ROIC, investments are evaluated via a rigorous framework; Cloud already shows measurable returns and excess demand, and long‑term investments are made only when expected returns justify them.

• Question from Ross Sandler (Barclays): About 20% of Google's search queries are commercial historically, and you've talked a bunch on this call about how AI Overviews are kind of expanding the breadth of queries. Could you talk about how new products from the monetization side, like AI Max, are potentially increasing the percent of commercial queries?
  Response: AI Max broadens advertisers' ability to reach a wider range of queries; combined with AI Overviews and AI Mode increasing total queries, this creates opportunities to convert more queries (including adjacent non‑commercial queries) into monetizable commercial activity.

• Question from Kenneth Gawrelski (Wells Fargo Securities): First, it appears more and more clear that all the new modes -- Google with Gemini Overview -- AI Overviews, AI Mode, even ChatGPT is growing the addressable market for engagement and search-like behavior. Could you talk about what gives you confidence that it will also grow the addressable market for marketing activity and overall revenue associated with that behavior? That's question one. And question two is just more about as you think about AI Mode, AI Overviews and traditional Google Search, how do you think -- do you see a world in 12 to 24 months, those all will exist? And does the user eventually pick what mode they want? Is -- does the algorithm pick the mode? Can you talk a little bit about how you think that will progress over the next 12 to 24 months?
  Response: Management expects the expansion in engagement to drive additional commercial journeys and revenue over time; they will evolve surfaces thoughtfully—keeping multiple modes today while working to simplify and unify experiences over time so users get the right mode for their needs.

• Question from Justin Post (BofA Securities): Sundar, I think you mentioned Gemini 3 is coming. Maybe you can comment on the pace of innovation in frontier models. Is there still just a tremendous amount of innovation? Or is it slowing at all? And then you mentioned a number of large deals signed in the last 9 months for cloud, which is great. Any changes in the economics of these deals as far as long-term profitability? Anything we should be aware of?
  Response: Frontier model innovation remains rapid though releases may take longer to deliver notable step‑ups; Gemini 3 is expected later this year. Cloud is signing more large (> $1B) deals; full‑stack differentiation (models + infra) supports favorable long‑term revenue and margin trajectory.

Contradiction Point 1

AI Overviews Monetization

It involves differing statements about the monetization of AI Overviews, which could impact expectations regarding revenue optimization from AI-driven product features.

How does the longer AI query length affect ROAS, and how is ROIC being managed internally? - Michael Nathanson(MoffettNathanson)

2025Q3: AI Overviews monetize at the same rate as current ads. For AI Mode, we're testing carefully, and it's too early to discuss details. - Philipp Schindler(CMO)

How will AI Overviews impact click-through rates and ad monetization, and are there any updates on the relationship with OpenAI? - Ross Sandler(Barclays)

2025Q2: AI Overviews drive higher satisfaction and usage, with monetization similar to standard searches. This allows for innovation in ad formats. - Philipp Schindler(CMO)

Contradiction Point 2

AI Mode Impact on Commercial Queries

It involves statements about the impact of AI Mode on the percentage of commercial queries, which could influence expectations regarding the monetization potential of AI-driven innovations in the search ecosystem.

How are new products like AI Max increasing commercial query share? - Ross Sandler(Barclays)

2025Q3: AI Max expands the ability for advertisers to reach a wider range of queries. AI Mode may increase the base of commercial queries, potentially expanding into adjacent commercial areas. - Philipp Schindler(CMO)

How do you assess the impact of changes in consumer behavior on product and platform evolution, especially clicks and monetization? - Eric Sheridan(Goldman Sachs)

2025Q2: We expect AI Mode to introduce new queries into the ecosystem, and we are excited about this expansion. - Sundar Pichai(CEO)

Contradiction Point 3

AI Overviews and AI Mode Monetization

It involves the monetization of AI Overviews and AI Mode, which is crucial for understanding the financial impact of these innovations on the company's revenue.

How does AI Mode's longer query length affect ROAS, and how is ROIC managed internally? - Michael Nathanson (MoffettNathanson)

2025Q3: AI Mode has strong growth, and queries doubled over the quarter, but it's too early to discuss ad performance in detail. - Philipp Schindler(CBO)

How should we think about the breadth of AI Overviews rollout and its monetization? Are there any changes in Google's approach to cost management? - Doug Anmuth (J.P. Morgan)

2025Q1: AI Overviews monetization is at approximately the same rate, serving as a strong base for innovation. - Philipp Schindler(CBO)

Contradiction Point 4

AI Overviews and AI Mode User Engagement

It concerns the user engagement with AI Overviews and AI Mode, which is essential for understanding the shift in user behavior and the success of these innovations.

Do AI Overviews and AI Mode impact user engagement and search economics? - Mark Shmulik (Bernstein)

2025Q3: AI Overviews have high engagement, and AI Mode has varied cohorts, with a core group who like AI Mode, seeking it out. - Sundar Pichai(CEO)

What factors in advertising verticals or regions might lead to weaknesses in Q2? Which products are driving growth in commercial queries? - Brian Nowak (Morgan Stanley)

2025Q1: AI Overviews are at the center, expanding to new users and questions. The largest expansion of AI Overviews was in Q1, positively impacting Search usage. - Philipp Schindler(CBO)