Preview|GOOG 3Q25: GCP's Path to $100Bn ARR
AI Overview, AI Mode, AI Max, SEO, TPU, Anthropic/Apple
We have published several reports on GOOG since last quarter.
In our 2Q25 Preview, we analyzed how Google cleverly monetized AI Overview with ads, demonstrating that AI Overview not only had no negative impact but actually created additional ad inventory. We also discussed how AI Overview and AI Mode help Google monetize the >60% of queries that remain uncommercialised.
In our subsequent GOOG report, we analyzed TPU and OCS advantages, and how hardware superiority has enabled Gemini’s cost advantage.
In this report, we observe several interesting developments
AI Mode has begun contributing incremental engagement time
AI Max, launched in September, is helping Google monetize previously uncommercialised long-tail queries
Apple and Anthropic will drive significant GCP growth next year
TPU demand is exceptionally strong with highly positive feedback
On the negative side, Amazon paused Google ad spend in the US during 3Q25
GOOG Preview
We interviewed 9 industry experts and gathered updated insights on key topics:
3Q25 overall advertising revenue trends
AI Overview, AI Mode, AI Max
Performance Max and other product innovations
Impact of Amazon pausing US ad spend on Google
Chrome AI developments
GCP and TPU
Quarterly outlook and forecast
Expert Insights
3Q25 Overall Ad Spend Trends and 2025 Outlook
1. North America Advertiser A raised guidance — Omnichannel annual spend >$100M, client mix weighted toward e-commerce, gaming, and internet services:
“As Google search becomes more AI-driven, it’s providing fewer free clicks to publishers. Consequently, companies are deciding to invest more in advertising, benefiting Google and other platforms like Meta. This is one of the common drivers behind Google’s improved growth.”
“Breaking down the drivers: paid clicks are decelerating, but CVR is improving. Paid clicks were +5.9% YoY in 3Q last year, now +3.5%. However, CVR was +3.6% YoY last year, now +9.3% YoY — improving. I believe AI search delivers higher-quality clicks, resulting in better conversion rates.”
2. North America Advertiser B raised guidance — Global 4A agency media buyer, omnichannel annual budget >$200M, all US-based:
“Google ads performed better than expected in 3Q, with PMAX maintaining strong momentum.”
“Since July when Amazon stopped advertising on Google, our Amazon seller clients have increased their Google spend.” While this benefits Advertiser B’s clients, it may not be positive for Google’s platform overall.
3. Europe Advertiser A lowered guidance — Global 4A agency, omnichannel annual budget >$200M EUR, primarily European:
“Weaker European macro environment, cautious client spending + AI transformation impacting budget allocation, causing advertiser budgets to come in below prior expectations.”
4. Asia Advertiser A raised guidance — Omnichannel annual budget ~$100M, 80% e-commerce related:
“Second half outperformance is primarily driven by PMAX, contributing 70%, with AI Overview being the core driver within PMAX. Incremental budget from AI Overview represents approximately 50% of PMAX’s incremental contribution, or ~35% of total incremental spend.”
“Additionally, Maximize Conversions optimization improved significantly this quarter, helping us maximize sales lead acquisition.”
5. Asia Advertiser B maintained guidance — Omnichannel annual spend >$6Bn USD, primarily gaming and internet services:
“Our budget allocation to Google is already very high — 2x Meta — so incremental growth is constrained.”
6. North America Ad Tech Expert A views advertising as better than expected:
“I’m hearing many Google PMs now have a mantra that revenue isn’t the top priority. Previously, these PMs working on innovative products and new features had to consider advertising revenue impact and needed to balance. Now with strong ad revenue, they don’t even need to balance anymore.”
AI Overview Progress and Advertising Revenue Impact
In last quarter’s Preview, we noted that Google has only commercialized 30-40% of queries, with over half of searches not monetized due to keywords that are difficult for advertisers to bid on and have low commercial value. AI Overview can help Google monetize these low-intent queries, representing net incremental revenue for Google Search. This quarter, we observed increasing AI Overview penetration, with increasingly significant contribution to ad revenue through PMAX.
1. North America Ad Tech Expert A:
“Based on our channel checks, we estimate AI Overview represents 30% of queries in the US (up from 20% in June). We’ve run tests having users evaluate whether AI Overview or traditional search provides better results, and found that in half the cases, traditional search results are still superior — often users are asking simple questions or just seeking navigation and don’t need summaries, plus models still exhibit some hallucination. Given current model capabilities and considering the cost of using models for AI Overview, based on my experience, I estimate AI Overview query penetration maxes out at 40%.”
