NEW YORK / ConSynSer / – Meta grew its advertising revenue more than twice as fast as Google’s search business in the third quarter, a sign of how AI is reshaping digital advertising. Meta’s ad revenue climbed 26% to US$63.1 billion, up from $50.1 billion a year earlier. Google’s Search and other unit grew 12% to $63.4 billion. The gap of 14 percentage points is the widest in Meta’s favour since 2021.
The results support Mark Zuckerberg’s claim that Meta’s AI investments are improving targeting tools for brands on Facebook and Instagram. Google faces a different problem, as chatbots become an alternative to search and users click on fewer links. ChatGPT, Anthropic’s Claude and Meta’s new Muse assistant are all drawing users. Instagram users are also spending more time scrolling, creating more space for ads. Google and Facebook have dominated online advertising for the past two decades.
Emarketer AI analyst Nate Elliott told CNBC that AI could lead people to tools they like better than Google. He said better results from ChatGPT, Claude or Muse could change search habits for the first time in a generation. Elliott described that prospect as potentially catastrophic for Google’s ad business. UBS analysts said the results bring search cannibalization fears back to the forefront. Google also earned about $11 billion from YouTube in the quarter, on top of its search revenue.
Meta’s AI assistant lifts advertiser returns
Meta turned to AI after Apple’s 2021 privacy change on iOS curbed its ability to target iPhone users. Its revenue dropped in 2022 for the only time in company history. A year ago, Meta launched its Meta AI business assistant, which advertisers can plug into Ads Manager. Chief Financial Officer Susan Li said syrup producer Simply Organic Maple saw purchases rise 57% and cost per purchase fall 36% using the tool.
Nearly 10 million advertisers used at least one Meta AI tool in the third quarter, Li said. Google is putting its Gemini models across its entire ads infrastructure, according to chief business officer Philipp Schindler. Search queries reached a record high in the quarter, but revenue growth is slowing. AI Overviews and AI Mode give users summaries rather than links, putting Google in direct competition with chatbots.
AI spending weighs on both stocks
Alphabet suffered its worst day ever on the stock market after its earnings, falling more than 12% and losing about $500 billion in value. Meta shares dropped 14% in October after a 27% surge in September. Heavy AI spending has pushed both companies into negative free cash flow. Meta plans up to $145 billion in capital expenditure this year and recently announced a US$95 billion equity raise. Google projects up to $205 billion.
Google is further ahead in diversifying, with ads making up less than two-thirds of revenue. Its cloud unit more than doubled revenue to $31 billion, helped by demand for its custom AI chips. Meta still relies on ads for 98% of its sales and is building a subscription business around AI models and agents. Wedbush analysts said Google needs new ad products that prove it can monetize the AI era.