Meta's ad business is thriving thanks to AI, while Google's search revenue is under pressure from the rise of chatbots. In the third quarter, Meta's ad revenue grew 26% year-over-year to $63.1 billion, more than double Google's 12% growth in its search division, which brought in $63.4 billion. This marks the widest growth gap in Meta's favor since 2021, putting the two companies nearly on par in size, though Google still benefits from an additional $11 billion in revenue from YouTube.
Google's challenge stems from chatbots like Anthropic's Claude and Meta's Muse, which are becoming alternatives to traditional search. Nate Elliott, an analyst at Emarketer, noted that if these AI tools prove better at helping users find what they need, search habits could change dramatically, posing a threat to Google's ad business. Meanwhile, Meta is capitalizing on increased user engagement on Instagram, which provides more advertising opportunities.
Despite Meta's strong ad performance, both companies faced stock market turbulence. Alphabet experienced its worst day ever, with shares plunging more than 12% and wiping out about $500 billion in market cap following a disappointing earnings report. Meta also saw a 14% drop in October, its worst month since October 2022, after a 27% surge in September. Investors are concerned about the companies' heavy spending on AI infrastructure and whether it will translate into sufficient revenue.
Meta has integrated AI into its ad products, with tools like the Meta AI business assistant helping advertisers improve campaign performance. CFO Susan Li reported that advertisers using the system saw almost 5% more conversions and a 9% increase in advertising investment. Nearly 10 million advertisers used at least one of Meta's AI tools in the third quarter. Google is also deploying its Gemini models across its ad infrastructure, but its search engine is directly competing with chatbots, raising concerns about cannibalization.