Does seem likely for Google though integrating ads into text in a durable way could be challenging.

If it’s overt then it’s easily filtered out, if it’s baked in to deep the it harms response quality

Is there going to be enough new ad spend to justify that model? Will everyone else spend even more on ads than they do now?

It doesn't need to be new ad spend. Just the possibility of the existing ad spend being up for grabs justifies all the capex so far.