Alphabet shares fell 1.4% despite second quarter results that beat Wall Street forecasts on both revenue and earnings.
The Google parent reported revenue of $119.8 billion and earnings per share of $9.11, against analyst expectations of $116.9 billion.
Google Cloud revenue rose 82% year on year to $24.77 billion, and remaining performance obligations, the value of contracts signed but not yet delivered, reached $514 billion against a forecast $488.1 billion.
The share price reaction points to the number investors actually cared about.
Capital expenditure hit $44.9 billion in the quarter, double the same period last year, keeping Alphabet on track for full-year spending of $180 billion to $190 billion.
Free cash flow fell roughly 47% year on year in the first quarter to $10.1 billion, and chief financial officer Anat Ashkenazi has already told investors 2027 spending will increase significantly again.
The stock has dropped in each of the past three months and sits below its 52-week high, behind Apple and Nvidia for the year despite an 11% gain.
Adding to the unease, Bloomberg reported Google has delayed its Gemini 3.5 Pro model over concerns about how it compares with rivals, a claim the company disputes.
The click that never comes
Beneath the quarterly numbers sits a structural problem that no earnings beat resolves.
Google's advertising business, which delivered $81.63 billion this quarter, depends on an open web of publishers producing the content its search results index and monetise.
That web is contracting.
Ahrefs data published in February found AI Overviews, the AI-generated summaries Google places above search results, cut click-through rates for the top-ranked link by 58%, nearly double the figure measured eight months earlier.
Roughly 83% of searches featuring an AI Overview end without a click to any website.
The consequences are already visible: Business Insider lost 55% of its organic traffic and cut 21% of staff, CNN saw traffic fall about 30% year on year, and DMG Media, owner of MailOnline, reported click-through declines of up to 89% on affected queries.
Gartner forecasts that half or more of organic search traffic to websites will disappear by 2028.
Eating the goose
The logic is uncomfortable for Alphabet.
Search advertising works because users click through to pages carrying more advertising, much of it also sold by Google.
If publishers close, the corpus of fresh, reliable content that makes AI Overviews useful thins out, and the inventory Google monetises across the wider web shrinks with it.
Advertisers then concentrate spending inside the walled gardens, which flatters Google in the short term and narrows the ecosystem it depends on over the longer term.
Wall Street has so far treated this as someone else's problem, focusing instead on cloud growth and capex discipline.
That is unlikely to hold indefinitely.
The moment search revenue growth decelerates while capital spending keeps climbing, the two stories converge, and investors will be asked to value a business that has consumed part of its own supply chain.
