SAN FRANCISCO, CALIFORNIA / ConSynSer / – Google’s search business is losing ground to Meta’s advertising engine as AI changes how people find information online. Meta’s ad revenue jumped 26% to $63.1 billion in the third quarter, more than twice the 12% growth in Google’s Search and other unit. Google search brought in $63.4 billion, leaving the two businesses neck and neck by size. Google also earned an additional $11 billion in the quarter from YouTube.
The 14-percentage-point growth gap is the widest in Meta’s favor since 2021. Consumers are increasingly turning to chatbots such as ChatGPT, Anthropic’s Claude and Meta’s new Muse assistant instead of traditional search. That means fewer clicks on the blue links that generate Google’s ad revenue. Meanwhile, people are spending more time scrolling Instagram, which gives Meta more space to show ads. Meta also says AI is making its targeting tools sharper for brands.
Nate Elliott, an AI analyst at Emarketer, told CNBC that people’s search habits might change for the first time in a generation if chatbots prove better at helping them find things. Elliott warned that such a shift could be catastrophic for Google’s ad business. UBS analysts wrote after Google’s results that search cannibalization fears were back at the forefront, made worse by Meta’s strong ad quarter and the threat from Muse and AI agents.
Alphabet suffers its worst trading day
Alphabet reported third-quarter results on Wednesday, October 28. The next day, its shares plunged more than 12%, their worst day ever, erasing about $500 billion in market value. Google said search queries reached a record high in the quarter, yet revenue growth is slowing. Its search engine now competes directly with chatbots through AI Overviews and AI Mode, which give users summaries rather than links to other websites. Wedbush analysts said shares may not recover until the search narrative changes.
Google has a similar chance to use AI in ad products, including on YouTube. Chief Business Officer Philipp Schindler said Google is deploying its Gemini models across its entire ads infrastructure to add advertiser tools and improve ad quality. Google is also less dependent on ads, which make up less than two-thirds of its revenue. Its cloud division grew more than 100% to $31 billion, driven by demand for infrastructure and custom chips called tensor processing units.
AI tools revive Meta’s ad engine
Meta needed AI after Apple’s 2021 iOS privacy change limited its ability to target iPhone users, and its revenue fell in 2022 for the only time in its history. The Meta AI business assistant, launched a year ago, now helps advertisers build campaigns in Ads Manager. On Meta’s third-quarter earnings call, CFO Susan Li said adopters saw almost 5% more conversions. Almost 10 million advertisers used at least one Meta AI tool in the quarter.
Investors remain wary of the huge spending behind these gains. Meta shares fell 14% in October, their worst month since October 2022, after a 27% surge in September. AI buildouts have pushed both companies into negative free cash flow. Google projects up to $205 billion in capital expenditures this year, and Meta expects up to $145 billion. Meta, which counts on ads for 98% of sales, recently paused Muse chat links while building a subscription business.