Let’s level set going into earnings. Three months ago, the message from Google around Search and AI more broadly made a subtle shift from defense, battling chatbots for engagement, to offense, as evidenced by the comment last quarter that the company is in an “expansionary moment for Search.”

During that time, the company has had five wins that have won back investor confidence in its ability to win in AI. They include:

1. Search exceeding expectations. On the September earnings call, Sundar highlighted that AI experiences are resulting in consumers wanting more information, which has added meaningful query growth. That translated to AI Mode reaching over 75M daily active users in September, doubling from June. At the time, Search head Philipp Schindler said Google was expanding ads below and within the AI response, while also confirming the company was testing ads in AI Mode. He emphasized it was too early to share details and that testing would continue before expanding.

2. Nano Banana becomes a viral sensation. Google’s Gemini image editing tool went viral over the past three months. It rolled out in late August and added a Pro version in late November. This drove Sundar to report in October that monthly Gemini users reached over 650M, up from 450M three months earlier.

3. Gemini 3 leaps ahead of GPT, triggering a code red. Few would have thought six months ago that Gemini would emerge as a threat to GPT. That reality set in at OpenAI, resulting in early December comments that the company was in a code red given the strength of competition from Gemini.

4. This past week, it became official that Apple picked Gemini to power the upcoming new Siri, displacing GPT.

5. Also this past week, Google entered the agentic commerce market, announcing checkout inside AI Mode and launching new AI Mode ad units including Direct Offers, along with a partnership with Walmart to begin rolling out the new formats.

Search accounts for 50% of Google’s revenue. The cleanest way to take a pulse on how aggressive Google is being in showing ads in Overviews and AI Mode is to watch how quickly it expands sponsored inventory across classic Search, AI Overviews, and now AI Mode.

Our testing supports the view that monetization increased measurably over the past three months. We revisited our testing of 200 prompts, measuring:

1. Classic Search showed ads 81% of the time in August, 86% in October, and 92% in January.

2. AI Overviews appeared in search results 61% of the time in August, rising to 84% in October and 87% in January.

3. Most important for revenue, ads inside an AI Overview, conditional on an AI Overview appearing, jumped from 1% in August to 76% in October and 82% in January.

4. AI Mode is still nascent, but it is no longer ad free. We saw ads in none of our August and October studies and in 11% in January.

If Search revenue is going to exceed the December quarter estimates,  it will almost certainly be because monetization has been turned up, not because the underlying ad market has improved. Given the increase in ads we recently observed, we now believe Search growth will come in December at 15% vs the Street at 14%. For CY26, we’re looking for 14% growth vs the Street at 12%.

Disclaimer