To The Moon

The digital advertising industry is booming and incredibly attractive for investors. The two giants dominating global digital ad revenue are $Alphabet(GOOG)$ $Alphabet(GOOGL)$ 's Google and $Meta Platforms, Inc.(META)$ ' Facebook, together holding a hefty 57% of the market. $Amazon.com(AMZN)$ trails in third with a mere 7%.

For investors eyeing the digital ad market, Alphabet and Meta are the top contenders. But if you had to pick one, which would be the better investment? Let’s break it down!

1.Reasons to Invest in Alphabet

Alphabet is basically a money-making machine. Search engine ads are the biggest cash cows in digital advertising, expected to rake in $307 billion of this year's total global digital ad spend of $740 billion. In this arena, Google is the undisputed king. In the second quarter, Google’s ad revenue hit $48.5 billion, up from $42.6 billion in 2023, making up nearly 60% of Alphabet's total sales of $84.7 billion.

But wait, Google isn’t Alphabet’s only cash cow. The company also owns YouTube, the second-largest website in the world. In Q2, YouTube ad sales brought in $8.7 billion, up from $7.7 billion last year. YouTube is riding the streaming wave, as advertisers shift their budgets from traditional TV to online platforms like YouTube.

Alphabet is also leveraging AI investments to boost app usage. CEO Sundar Pichai mentioned in the second-quarter earnings call that Google’s AI-generated search results (aka AI Overviews) are driving more searches and improving user satisfaction.

With a staggering $13.5 billion in free cash flow in Q2, Alphabet is well-positioned. This cash is being pumped back into AI tech, stock buybacks, and a quarterly dividend of $0.20 per share for shareholders.

2.Reasons to Invest in Meta Platforms

Meta Platforms has also shown impressive performance lately, especially in revenue growth. In the first half of 2024, Meta's revenue jumped 25% to $75.5 billion, a massive leap from just 7% growth to $60.6 billion in the same period in 2023.

Meta’s sales surge is fueled by its family of apps—Facebook, WhatsApp, and Instagram—leveraging AI to enhance user engagement. AI helps Meta’s recommendation algorithms better suggest content users might like. As a result, the daily active users increased by 7% year-over-year to 3.3 billion in Q2.

More users mean more ad views, and Meta's ad impressions rose by 10% in Q2. On top of that, ad prices jumped by 10%, fueling revenue growth for 2024.

Meta’s stock price has soared in the past year, climbing from a 52-week low of $279.40 last October to a high of $573.98 on September 23. The recent uptick is partly thanks to Citigroup analyst Ronald Josey raising his price target to $645, one of the highest on the market. Currently, Wall Street analysts rate Meta as a “buy,” with a median target price of $587.

With the uptick in ad sales, Meta’s free cash flow reached $10.9 billion in Q2. Like Alphabet, this social media giant is investing in AI while paying a $0.50 per share dividend to shareholders.

GOOG or META?

Both of these ad tech companies boast impressive ad revenues and are investing those earnings into AI to boost their businesses.

However, Alphabet is currently embroiled in antitrust lawsuits over its digital ad business. If things go south, revenues could take a serious hit, and they might even be forced to divest some of their ad tech operations.

On the flip side, Meta has successfully used AI to ramp up business and revenue, but its stock price is nearing historic highs, which could lead to some pullback.