Meta Platforms is widening its advertising growth advantage over Google as artificial intelligence changes how consumers discover information, products, and services online, creating a new competitive divide between two companies that have dominated digital advertising for more than two decades.
Meta’s advertising revenue rose 26% to $63.1 billion in the third quarter, up from $50.1 billion a year earlier. Google’s Search and other advertising division generated $63.4 billion, up 12% over the same period. The 14-percentage-point growth gap was the widest in Meta’s favor since 2021, bringing the two businesses almost level in quarterly advertising revenue.
The figures point to an important shift in the economics of online advertising. Meta is using artificial intelligence to improve how effectively brands reach consumers across Facebook and Instagram, while Google faces the more difficult task of adapting its search business to a market where AI chatbots provide answers without directing users to traditional search results.
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Google’s advertising model has historically depended on users entering queries, clicking links, and encountering sponsored results. The emergence of ChatGPT, Anthropic’s Claude, and other AI assistants is changing that behavior, potentially reducing the number of opportunities Google has to display conventional search advertisements.
Meta, meanwhile, benefits from a different pattern of consumer engagement. Users continue spending time scrolling through Instagram and Facebook, giving the company opportunities to display advertisements even as AI changes how people search for information elsewhere.
Nate Elliott, an analyst covering AI at Emarketer, described the shift as a potential threat to Google’s established business model.
“If ChatGPT or Claude or Muse is better at helping them find what they’re looking for, people’s search habits might change for the first time in a generation,” Elliott told CNBC. “That’s potentially catastrophic for Google’s ad business.”
Meta’s recent advertising performance provides evidence that its AI investments are already producing commercial benefits, particularly through improvements in targeting, campaign creation and conversion rates.
The company has spent years rebuilding its advertising technology after Apple’s 2021 iOS privacy changes restricted its ability to track users across applications and target them with personalized advertisements. The changes weakened a key advantage of Meta’s business and contributed to a difficult period in which revenue declined in 2022 for the first time in the company’s history.
The launch of ChatGPT later that year accelerated the industry’s shift towards generative AI. Meta initially struggled to establish a consistent position in the development of advanced AI models, falling behind OpenAI and Anthropic in some areas. However, it has increasingly applied AI to its existing advertising infrastructure, where improvements can translate directly into higher marketing returns.
A year ago, Meta introduced its AI business assistant, which advertisers can use through Ads Manager to develop campaigns and improve performance. The system is designed to help businesses identify audiences, generate advertising content, and optimize their spending.
Meta Chief Financial Officer Susan Li said on the company’s latest earnings call that advertisers adopting the assistant’s recommendations generated almost 5% more conversions and increased their advertising investment by 9% compared with similar businesses that did not use the tools.
Li cited syrup producer Simply Organic Maple as an example. The company recorded a 57% increase in purchases and a 36% reduction in cost per purchase after using the assistant, she said. Nearly 10 million advertisers used at least one of Meta’s AI tools in the third quarter.
These figures help explain why Meta’s AI spending has a relatively direct connection to its advertising business. Better targeting and campaign optimization can increase the value advertisers receive from each dollar spent, encouraging them to allocate more budgets to the platform.
Google is pursuing a similar approach across its advertising products, including YouTube. Chief Business Officer Philipp Schindler said the company was deploying its Gemini models across its advertising infrastructure to improve ad quality and provide advertisers with additional tools.
However, Google’s challenge extends beyond improving advertising technology. Its core search product is also being reshaped by the same AI systems that are creating new opportunities for advertisers.
Google’s Search Model Faces a Different Test
Google said search queries reached a record high in the third quarter, but revenue growth from its Search and other advertising division slowed to 12%. The difference between rising query volumes and slower advertising growth raises questions about how effectively the company can monetize searches as AI-generated answers become more prominent.
Google’s AI Overviews and AI Mode provide summaries and responses directly within its search experience, reducing the need for users to visit individual websites. While these features are intended to keep Google competitive with standalone AI assistants, they also introduce a potential conflict with the company’s traditional advertising model.
If users receive satisfactory answers without clicking through to websites, the number and type of advertising opportunities available to Google could change. The company must now develop ways to monetize AI-assisted searches without undermining the user experience or weakening the value of its existing advertising products.
Analysts at UBS identified this tension after Google’s results, warning that Meta’s advertising strength and the growing threat from AI assistants could bring concerns about search cannibalization back into focus.
The competition is also unfolding against a backdrop of enormous infrastructure spending. Google projects capital expenditure of up to $205 billion this year, while Meta expects to spend as much as $145 billion. Both companies are investing heavily in data centers, computing capacity and AI models, hoping to secure a leading position as businesses and consumers adopt more advanced services.
Those commitments are weighing on cash generation. Both companies have moved into negative free cash flow territory, raising questions about whether the revenue generated by AI products will eventually justify the cost of building and operating the infrastructure.
The market reaction has been severe. Alphabet suffered its worst trading day on record after its third-quarter earnings report on Wednesday, with shares falling more than 12% and wiping out approximately $500 billion in market value. Meta shares also declined 14% in October, their worst monthly performance since October 2022, following a 27% gain in September.
The declines show that investors are assessing the companies on more than their ability to grow advertising revenue. They also want evidence that rising AI expenditure can produce sustainable earnings and cash flow.
Diversification Separates The Two Companies
Both companies are attempting to reduce their dependence on traditional advertising, but their starting positions differ significantly.
Advertising still accounts for approximately 98% of Meta’s revenue, leaving the company heavily exposed to changes in digital marketing and consumer engagement. Its investments in AI models and agents are partly intended to create new products and eventually support subscription-based revenue.
Google has a broader business portfolio. Advertising contributes less than two-thirds of its revenue, while its cloud computing division has become an important growth engine.
Google Cloud generated $31 billion in quarterly revenue, more than doubling from a year earlier, driven by demand for its computing infrastructure and custom Tensor Processing Units, or TPUs. The division gives Google another route to monetize AI investment by selling computing services and specialized chips to businesses developing and deploying AI systems.
That diversification provides Google with a different source of growth, although its search business remains central to the company’s financial outlook.
Wedbush analysts said Google’s shares were unlikely to gain sustained momentum until investors became more confident about the future of search monetization. They argued that the company would need new advertising products and evidence that it could generate revenue from AI-driven search as effectively as it had from traditional search.
The emerging competition is thus seen not as a contest over which company develops the most advanced AI model, but a test of how effectively each business can convert AI into advertising revenue, subscription income and cloud sales without allowing infrastructure costs to overwhelm the returns.