Meta ad revenue outpaces Google search as AI reshapes online discovery

Meta's advertising business expanded 26% in the third quarter, reaching $63.1 billion, while Alphabet's search and other division grew 12% to $63.4 billion, according to CNBC Technology. The 14-point difference in growth rates is the largest advantage Meta has posted over Google since 2021, and it leaves the two ad operations roughly equal in size.

The figures support Mark Zuckerberg's argument that his company's spending on artificial intelligence is producing sharper targeting tools for brands advertising across Facebook and Instagram. Google's difficulty is different: chatbots are increasingly serving as an alternative to traditional search, so consumers click fewer links and the company collects less ad revenue. Anthropic's Claude and Meta's recently launched Muse assistant are part of that shift, CNBC reported.

Nate Elliott, who studies AI at Emarketer, told CNBC in an email that the trend cuts both ways. He said people may find tools they prefer to Google, and if a chatbot serves their needs better, long-standing search behaviour could shift for the first time in a generation. He described that prospect as potentially catastrophic for Google's advertising business.

Wall Street reacted sharply. Alphabet posted its worst trading day on record after a disappointing third-quarter report on Wednesday, falling more than 12% and losing about $500 billion in market value. Meta's stock dropped 14% in October, its weakest month since October 2022, after climbing 27% in September.

Investors are uneasy about the cost of the two companies' AI buildouts, which have pushed both into negative free cash flow, and about whether the infrastructure spending will produce enough revenue. Meta still draws nearly all its revenue from ads and is funding AI models and agents in pursuit of a subscription business. Google's cloud unit grew more than 100% to $31 billion in quarterly revenue, helped by demand for its infrastructure and its tensor processing units.

Meta turned to AI after Apple's 2021 iOS privacy change curbed its ability to target iPhone users, and its revenue declined the following year, the only such drop in its history. OpenAI's ChatGPT arrived in late 2022.