Meta Poised to Overtake Google in Digital Ad Revenue Thanks to AI

Analyst Mark Shmulik from Bernstein believes that Meta Platforms (META) is on track to surpass Google Search as the largest destination for digital ad revenue this year, thanks to significant gains from AI. This prediction comes despite concerns over heavy capital spending and uncertain returns.

In the second quarter, Meta captured nearly half of every incremental digital ad dollar, according to Bernstein. The firm notes that AI is strengthening rather than disrupting the largest platforms, with Meta, Alphabet (GOOGL), and Amazon (AMZN) delivering some of their strongest ad growth in years due to larger data sets, better targeting, and automation.

Meta stands to benefit most from AI improvements because it must predict what content and ads users will engage with, unlike search where users explicitly signal intent. This irony is that digital ad fundamentals have rarely been stronger while the stocks have struggled, as investors penalize Meta and Google over heavy AI capital spending and uncertain returns.

The benefits of AI are instead accruing to e-commerce companies, which have enjoyed similar tailwinds at a lower cost, driving return-on-ad-spend gains and outperformance. This trend suggests that while AI is transforming the ad landscape, not all players will benefit equally.