Despite the significant attention given to generative artificial intelligence (AI) last year, its impact on the advertising business of Alphabet (GOOGL.O) and Meta Platforms (META.O) is expected to be modest in the upcoming fourth-quarter results. While both companies have incorporated AI tools into their advertising strategies, investors are primarily looking for incremental use cases and revenue streams from these advancements.
Alphabet, the parent company of Google, has introduced AI tools designed to assist advertisers in more cost-effective audience targeting and budget allocation across Google’s ad network. Similarly, Meta Platforms, the parent company of Facebook, utilizes generative AI to create diverse variations of ad campaigns.
Generative AI, capable of producing text and images from prompts, is still considered to be in the “hype cycle.” Investors are now eager to see additional applications and revenue opportunities stemming from recent advancements in this technology.
Digital advertising’s core business is expected to have remained resilient in the last quarter of 2023, countering concerns about economic and geopolitical uncertainties dampening the ad market. Microsoft (MSFT.O), set to report quarterly results, is anticipated to be an early beneficiary in the emerging generative AI competition.
Alphabet’s stock surged 58% in the previous year, while Meta’s stock nearly tripled. As we enter 2024, political advertising is expected to become a significant catalyst, potentially boosting businesses at both Meta and Google. Political ad spending in the U.S. is projected to rise by 30% compared to the 2020 presidential election, driven by increased expenditure on digital platforms.
In the upcoming financial reports, Alphabet is expected to reveal fourth-quarter advertising revenue growth of 11.8% to $66 billion. Google’s experimental AI chatbot Bard and the search generative experience (SGE) are among the initiatives introduced to enhance the advertising experience. While SGE is anticipated to contribute to incremental search advertising revenue in the future, its immediate impact may be limited.
Meta, the second-largest digital ad platform, has demonstrated positive outcomes from its AI tools in surveys with advertisers. Despite earlier concerns about potential impacts on ad spending due to geopolitical conflicts, Meta is estimated to report fourth-quarter revenue of $39.1 billion.
As these tech giants navigate the evolving landscape of generative AI, the focus remains on identifying tangible applications that can drive revenue growth in the dynamic advertising industry.
