SAN FRANCISCO, CALIFORNIA / ConSynSer / – Artificial intelligence is boosting Meta’s advertising business while putting pressure on Google search. Meta’s ad revenue rose 26% in the third quarter to $63.1 billion, up from $50.1 billion a year earlier. Google’s search unit grew just 12% to $63.4 billion over the same period. The 14-point gap is the widest in Meta’s favor since 2021. It also puts the two businesses nearly level by size, although Google earned another $11 billion from YouTube.
Google and Facebook have dominated the internet for two decades, turning billions of users into trillions of dollars in advertising. The rise of ChatGPT and other AI agents is now pulling the companies apart. Chatbots are becoming an alternative to search, so consumers click fewer blue links. Anthropic’s Claude and Meta’s recently launched Muse assistant add to that competition. At the same time, users are spending more time scrolling on Instagram, giving Meta more advertising opportunities.
Nate Elliott, an analyst covering AI at Emarketer, told CNBC that AI is a double-edged sword because people might find tools they like better than Google. If ChatGPT, Claude or Muse proves better at helping people find what they want, search habits could change for the first time in a generation. Elliott said that shift would be potentially catastrophic for Google’s ad business. The results back Mark Zuckerberg’s view that Meta’s AI investments are improving ad targeting.
Meta’s AI tools lift advertiser results
Meta needed AI to revive its ad business after Apple’s iOS privacy change in 2021 limited its ability to target iPhone users. The following year, Meta’s revenue fell for the first and only time in its history. A year ago, the company launched the Meta AI business assistant, which plugs into Ads Manager. Chief Financial Officer Susan Li said advertisers that adopted its recommendations saw almost 5% more conversions and raised their ad spending by 9%.
Li said syrup producer Simply Organic Maple used the assistant and saw a 57% increase in purchases and a 36% drop in cost per purchase. Almost 10 million advertisers used at least one of Meta’s AI tools in the third quarter. Meta still relies on ads for 98% of its sales. The company is pouring money into AI models and agents to build a subscription business and plans to raise $95 billion in stock to fund its AI expansion.
Search fears hit Alphabet shares
Alphabet shares plunged more than 12% on Thursday, October 29, the day after its third-quarter report, in their worst day ever on the stock market. The drop wiped out about $500 billion in market value. Google search queries hit a record, but AI Overviews and AI Mode give users summaries rather than links. Chief Business Officer Philipp Schindler said Google is deploying its Gemini models across its entire ads infrastructure. Meta stock fell 14% in October.
Both companies are spending heavily on AI, which has pushed each into negative free cash flow. Google projects up to $205 billion in capital expenditures this year, while Meta expects up to $145 billion. Google is further along in diversifying, with ads now less than two-thirds of revenue and Google Cloud sales more than doubling to $31 billion. Wedbush analysts wrote that Alphabet shares are unlikely to work until the search narrative changes.