(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 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.