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Google misses on ad revenue. Will AI continue that trend?

Alphabet (GOOG, GOOGL) reported its fourth-quarter earnings results revealing better-than-expected revenue and profit, but ad revenue came in weaker than analyst estimates of $65.94 billion. With search being one of the powerhouses of revenue for the Google-parent, questions around the impact of AI on search and ad revenue arise.

Baird Technology Desk Sector Strategist Ted Mortonson joins Yahoo Finance to give insight into the impacts of AI on search engines and what it could mean for Google and other tech companies.

When asked about how AI can potentially interrupt Google's dominance, Mortonson replies: "It will over the next two to three years, but it's nothing instantaneous. When you see the Meta (META) results and the Google results, they're still two of the most dominant players in advertising and they will be for the next quarters to come. Obviously, Microsoft (MSFT) with their investment with OpenAI, the search landscape will change."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Nicholas Jacobino

Video Transcript

- When we look at the ad sales number which seems to be also maybe a little bit of a source of disappointment. What were you expecting on the ad front? I mean, I was seeing a lot of positive chatter about relatively strong spending there.

TED MORTONSON: We were roughly pretty close to the street at a total advertising of 65.8. Again, the street was looking for a little bit better. It's still a relatively solid result. And if you look at search at 48 billion, that really came in line.

And that's where from a longer term perspective, people are really focused on this move to generative AI in relationship to not only some of the private companies that are two or three years out, but also Microsoft moving with a generative AI place into search. So that seems to be a very big focus longer term for the street, where Google has had basically a monopoly on search with generative AI. You've got different players at least trying to dethrone them in some way.

- Yeah, I mean, I'm interested to get your take on that, Ted. I was talking to Julie about that as well just, how you think about AI? And how it could very well potentially append kind of redefine Google's bread and butter, which is search?

TED MORTONSON: It will over the next two to three years, but this is nothing instantaneous. And I think when we see the META results and the Google results, they are two still of the most two dominant players in advertising. They will be for the next quarters to come.

Obviously, Microsoft with their investment with OpenAI, the search landscape will change. There are some private companies, like Perplexity that has gotten some good press lately. Over time, it may see additional competition. There's others that also could move into this group like even an Apple or an Amazon or a TikTok as it gets scale on that data layer.

- Ted, I'm looking also at YouTube revenue here. It looks like rising to 9.2 million in the fourth quarter from about-- call it a little under $8 million a year earlier. It's sort of a fascinating asset for Google. Where do you think they develop it from here? Does AI feed into that? And at some point, do we see a Google that separates YouTube?

TED MORTONSON: That's a really good question. I don't think anybody really knows at this point. But the 9.2 is a very solid result. Obviously, I think GoogleTV is taking share from some other players, whether it be DirecTV streaming, et cetera. It's a good offering. It is it's tied to the Google infrastructure. And quite frankly, from a technology standpoint, it works extremely well.

Spo, but as they gain subs and add content and gain that data, it is an arrow in their quiver, quite frankly, on growth that cannot be underestimated.