I think the reality is more a twist on 2): "AI is going to destroy their ad business and they want to goose their revenues while they can, hoping their AI business can compensate, but they know the AI business will never be as lucrative as the ad business."

Firstly, try to imagine stuffing as many ads as there are on a SERP into a chatbot conversation. Good way to lose users.

Secondly, Google spent decades hyper-optimizing their ad business monopoly for maximum profit, including going to extents that were recently found unlawful. People should really look into the findings of the last two Antitrust cases against Google, both of which it lost but for which it suffered only slaps on wrists. The details are eye-opening, including the bits about how Google, leveraging its prime position as the middle-man playing all sides against each other, manipulated ad auctions to make itself more money at the expense of its customers.

Even Microsoft was dinged for screwing over just their competitors, not their customers.

But now because of the paradigm shift in how people discover information, very little of the Google ad monoploy advantage transfers over. I think their AI business will keep growing, even if they don't have the best models, and it will be an exceptional source of revenue.

But it will still be no match to their ad business -- a cash cow of incomprehensible proportions -- and that is the fundamental problem they face today.