Gil Luria, D.A. Davidson head of technology research, joins 'Squawk Box' to discuss the quarterly earnings results of Alphabet and Microsoft, impact of AI chatbots on Alphabet's search business,
What Gil Luria said
Written from the verified transcript and checked against it. Every figure links to the moment it was said.
Gil Luria said Alphabet's Q3 2026 results mark the feared inflection point: Google Search ads abruptly decelerated, causing a major profit miss and negative free cash flow of $9 billion. He argued the shift to AI chatbots is structurally eroding Google's 90% search share, as users start commercial queries in ChatGPT, Claude, or Muse, where ads are less lucrative. He noted Meta's 28% ad growth shows the problem is Google-specific, not market-wide. Luria recommended splitting Alphabet: spinning off Google Cloud, which doubled to a $120 billion business and could trade at 30-40 times earnings, from the declining search ad business, which drags the stock to 18-19 times. He said Waymo should stay attached to cash-flow-positive businesses because it will lose money for years. He contrasted Elon Musk's unified Mars mission with Alphabet's shareholder-value goal, which justifies the breakup.
Key takeaways
Alphabet's Q3 2026 was the worst miss in years, with negative free cash flow of $9 billion due to AI spending.
Google Search ads abruptly decelerated, signaling the feared shift from search to AI chatbots is now happening.
Google Cloud doubled to a $120 billion business, but its value is dragged down by the declining search ad business.
Luria recommends splitting Alphabet: spinning off Google Cloud to trade at 30-40 times earnings, leaving search ad business at lower multiple.
Waymo should remain attached to cash-flow-positive businesses because it will lose money for many years.
2:52Why, why is AI Mode, why is that not being monetized?
4:08Why do you think, and they were so early, frankly, the earliest to the AI game, why do you think in terms of commercializing these services, they've been challenged?
Magnificent Seven. Earnings in focus, specifically Microsoft and Alphabet. Alphabet shares are falling after Google's parent company reported negative free cash flow worse than people thought, $9 billion for the quarter because they're spending so much. For its part, Microsoft beat expectations across the board, with Azure growing faster than expected. Joining us now on all of this and the AI spending story, Gil Luria, D.A. Davidson Head of Technology Research. It's really, I'd like to do tops down, but it's really bottoms up. It's what we see with Alphabet isn't necessarily what we're going to see with other tech names.
That's exactly right. Alphabet has been, Google has been generating most of its profits from Google Search ads for the longest time. It's been one of the best businesses ever constructed. And over the last few years, we've had this fear of what happens when we stop searching and we start using chats. And for the last couple of years, Google has actually been fine and investors have become complacent. But this is the quarter that we feared. This is a quarter where all of a sudden, hey, wait a second, maybe the change in behavior to AI is ruining this goose that lays the golden eggs for Google. There was an abrupt deceleration in Google Search ads and a couple of other businesses. Lower profitability than expected, probably the biggest miss they've had in years. And so investors are very concerned about what's going to happen to this business in the future. The internet's been flipped over. The internet is now being used by chatbots more than by humans, and it's very hard to sell a chatbot an ad. And that's the world that investors are going to be worried about today.
I noticed that what I use now, my go-to thing is Google AI Mode. I don't know why. Sorkin has tried to explain it to me, why I like it. It does more than Gemini, or does it differently than Gemini Google. But supposedly it's harder to monetize. I don't pay anything. I don't know what you're up to per month now, or how many you have. What's your total bill? How many do you pay for now?
No, it's probably maybe in that range because one of them I pay for the actual max one, which might be over $100 a month. Yeah, so yeah, I maybe, but that's nothing compared to the advertising revenue that I think Gil can speak to.
Why, why is AI Mode, why is that not being monetized? When I use it constantly, they should be able to change the AI Mode. No, no, Gil, I mean, it seems to me like it's maybe not an easy fix, but they probably could monetize it better.
That's their smallest problem. So translating a search to an AI Mode search and selling ads there is currently less lucrative. They'll figure that out. Their bigger problem is that unlike search, where they have 90% share, in chat they're a distant second to ChatGPT. And so if you're initiating a search in ChatGPT, if you're asking ChatGPT to find you the best insurance policy or the lowest cost flight, these used to be very lucrative searches that Google could sell ads to, and now it's a chatbot doing it, so they can't sell ads as much. That's the bigger problem. And now you have the emergence of Muse as a personal agent. People are using Claude for similar things. Then the search doesn't even happen in Google. That's the bigger problem. Converting within Google, they can do that. That's a matter of time. There are challenges that they're going from 90% share in search to a lot less than that in a world where people start their commercial queries within a chat environment.
12 more exchanges in this transcript
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Luria, G. (2026, October 29). Alphabet should split its search business from its cloud business, says D.A. Davidson's Gil Luria [Interview transcript]. CNBC Television. CEOInterviews.AI. https://ceointerviews.ai/interview/3157327/
MLA
Gil Luria. "Alphabet should split its search business from its cloud business, says D.A. Davidson's Gil Luria." CNBC Television, 29 Oct. 2026. Transcript, CEOInterviews.AI, https://ceointerviews.ai/interview/3157327/.
BibTeX
@misc{luria2026_3157327,
author = {Gil Luria},
title = {Alphabet should split its search business from its cloud business, says D.A. Davidson's Gil Luria},
howpublished = {Interview transcript, CNBC Television. CEOInterviews.AI},
year = {2026},
month = {oct},
url = {https://ceointerviews.ai/interview/3157327/},
note = {Speaker-attributed transcript with timestamps}
}
