A shake-up is coming to the digital-advertising industry, as Meta Platforms Inc. is posing a serious challenge to Alphabet Inc.'s Google Search.
According to Bernstein analyst Mark Shmulik, Meta (META) is on track to catch up to Google Search $(GOOGL)$ $(GOOG)$ in ad revenues by the end of 2026, thanks to its "gravity-defying ad-revenue performance."
Meta's second-quarter 2025 earnings blew investors out of the water, as the company posted above-consensus revenues and earnings per share, and gave upbeat third-quarter guidance. Ad revenue accounted for $46.6 billion of the total $47.5 billion of revenues during the quarter and grew 21% year-over-year.
For context, Google Search generated $54.2 billion in the same period, and is expected to do $65.4 billion in the December 2026 quarter, according to FactSet data. The consensus view projects Meta's advertising business will be in a similar vicinity by the December quarter of 2026, "while we imagine Meta bulls have even more bullish expectations," Shmulik wrote.
He added that in the latest quarter, Meta captured roughly 45 cents of each incremental digital ad dollar, growing its market share in the ad industry to 37% from 35% a year prior, due to a "two-legged improvement across both engagement and ad performance."
This puts Google in defense mode. While Google Ads dominates 45% of the existing digital ad spend, it's only taking 30 cents of every incremental ad dollar, according to Bernstein. If this trend persists, Meta has a straightforward path to becoming the dominant player in the digital ad industry. Google also has additional risk from ChatGPT and other AI search tools, which help users get answers but hurt search engines that rely on those users clicking on their ads.
Meta's strong performance is a testament to the success of its artificial-intelligence initiatives, which are driving increased consumer engagement and more lucrative ad pricing. Its Advantage+ product, which provides AI-powered ad solutions such as content generation and campaign optimization, showed strong momentum in the last quarter. On last quarter's earnings call, the company revealed that the average price per ad increased by 9%.
Time spent across Meta's apps is also increasing due to AI-powered content recommendation systems, further feeding into its ad ecosystem. In the second quarter, time spent on Facebook and Instagram increased by 5% and 6%, respectively.
Thanks to Meta's outperformance, the internet and digital ad space are receiving renewed interest from investors, according to Shmulik. Meta has shown that AI can be used to boost revenues through recommendation algorithms that increase engagement and more effective targeted ads. Additionally, AI is also reducing labor costs and helping Meta expand into creative ad design.
Shmulik sees Meta "leading the charge that 'social' platforms could all be AI winners."
However, right now "Meta is really the only publicly traded consumer AI play that's delivering real results," he added.
Shmulik has an outperform rating and $900 price target on Meta's stock, as well as a market-perform rating and $210 target on Alphabet's.
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