June 4 (Reuters) - Spending on AI-powered search

advertising is poised to surge to nearly $26 billion by 2029

from just over $1 billion this year in the U.S., driven by rapid

adoption of the technology and more sophisticated user

targeting, data from Emarketer showed on Wednesday.

Companies that rely on traditional keyword-based search ads

could experience revenue declines due to the growing popularity

of AI search ads, which offer greater convenience and engagement

for users, according to the research firm.

WHY IT'S IMPORTANT

Search giants such as Alphabet-owned Google and

Microsoft's ( MSFT ) Bing have added AI capabilities to better

compete with chatbots such as OpenAI's ChatGPT and Perplexity

AI, which provide users with direct information without

requiring to click through multiple results.

Apple ( AAPL ) is exploring the integration of AI-driven

search capabilities into its Safari browser, potentially moving

away from its longstanding partnership with Google.

The report has come as concerns grew about users

increasingly turning to the chatbots for conversational search

and AI-powered search results could upend business models of

some companies.

Online education firm Chegg ( CHGG ) said in May that it

would lay off about 248 employees as it looks to cut costs and

streamline operations because students are using AI-powered

tools including ChatGPT over traditional edtech platforms.

QUOTE

"Publishers and other sites are feeling the pain from AI

search. As they lose out on traffic, we're seeing publishers

lean into subscriptions and paid AI licensing deals to bolster

revenue," Emarketer analyst Minda Smiley said.

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CONTEXT

AI search ad spending is expected to constitute nearly 1% of

total search ad spending this year and 13.6% by 2029 in the

U.S., according to Emarketer.

Sectors such as financial services, technology, telecom, and

healthcare are embracing AI as they are seeing clear advantages

in using the technology to enhance their ad strategies, while

the retail industry's adoption is slow, the report said.

Google recently announced the expansion of its AI-powered

search capabilities into the consumer packaged goods sector

through enhancements in Google Shopping.