Google's push into AI Overviews is fundamentally changing how its Search business makes money, according to a new note from BofA Securities. The bank sees near-term revenue pressure as AI-generated answers alter user behavior, but it expects new ad slots in AI Overviews internationally to start supporting growth as early as the first quarter.
The concern isn't that people are searching less. BofA noted that Search revenue growth slowed even while the number of queries kept rising. That's a sign that AI-generated answers are changing what users click on and what advertisers are willing to pay for. Google has downplayed the early impact, but BofA thinks the shift matters more internationally, where ads inside Overviews are only starting to ramp up.
The tradeoff: more ad inventory, fewer clicks
This creates a tradeoff for Google. On one hand, AI Overviews open up new ad inventory—places where advertisers can pay to appear alongside AI-generated answers. On the other hand, there may be fewer of what analysts call “high-intent” paid clicks per search. High-intent clicks are the ones where a user is actively looking to buy something, and they tend to be the most valuable to advertisers. If AI Overviews answer a user's question directly, that user may not click on a traditional ad link, reducing the number of paid clicks per query.
There's also the cost side. Generating and serving AI answers requires significant computing power, which raises Google's cost per search. That's a key reason BofA's forecast reflects a margin debate, not just a growth debate.
Reflecting that mix, BofA lifted its fiscal 2027 revenue estimate by 11% to $616 billion, but trimmed its earnings per share estimate by 1% to $14.87 and cut its price target to $380 from $430. The revenue upgrade suggests the bank sees AI Overview ads as a meaningful growth driver, but the EPS cut and lower price target show that higher costs and fewer paid clicks could eat into profits.
What it means for investors
For everyday investors, this is a reminder that a company's revenue growth doesn't always translate into profit growth. Google's parent company, Alphabet, is investing heavily in AI, and that investment is reshaping its core Search business. The question is whether the new AI-driven ad formats can eventually generate as much profit as the old search ads did.
BofA's forecast suggests that AI Overview ads, especially as they roll out internationally, could help recover Search revenue. But if the new layout leads to fewer traditional paid clicks per query, or if answering with AI materially raises Google's cost per search, profits can lag even when sales rise. Until investors see AI Overview ads scale outside the US without squeezing profitability, Alphabet's valuation is likely to react more to evidence of margin stability than to top-line momentum.
This isn't just a Google story. The broader tech sector is grappling with similar dynamics as AI reshapes how companies monetize their products. For example, Google Cloud's recent earnings beat showed that enterprise AI spending is surging, which is a positive for the company's cloud business. But the Search side of the house is facing a different kind of pressure.
Investors should also keep an eye on regulatory and competitive pressures. Google has faced scrutiny over its app store practices, as seen in South Korea's fines over app store payment rules. While that's a separate issue, it's part of the broader regulatory environment that could affect Google's ability to monetize its platforms.
The bigger picture
AI Overviews are part of Google's broader strategy to stay competitive in search, especially as rivals like Microsoft's Bing integrate AI chatbots. The company is betting that AI can improve the search experience, even if it means short-term revenue disruption. For investors, the key is to watch how quickly AI Overview ads scale internationally and whether they can maintain profit margins.
BofA's note is a useful lens for understanding the tradeoffs. The bank's revenue upgrade is a sign that AI Overview ads could be a significant new revenue stream. But the EPS cut and price target reduction are a caution that the transition won't be painless. As with any major technology shift, there will be winners and losers, and the market is still figuring out who those will be.
For now, the message is clear: Google's Search business is in transition, and the economics of search are being rewritten. Investors should watch for signs of margin stability as AI Overviews expand, because that will be the real test of whether this AI bet pays off.
