META CEO Mark Zuckerberg (l.) and Microsoft CEO Satya Nadella.
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As tech giants increase their already staggering spending on artificial intelligence, their respective digital advertising businesses have also gained momentum.
Quarterly earnings reports this week from Meta, Amazon, alphabet And Microsoft All reported good advertising revenue.
Surging online advertising sales earlier this year eased concerns that economic turmoil exacerbated by President Donald Trump’s trade policies would negatively impact advertising budgets.
“I think the digital advertising market is strong,” said Jasmine Enberg, co-founder of Scalable, a creator economy media company. “I think that economic instability and volatility is kind of priced in for a lot of people at this point; it seems to be the status quo, so to speak.”
Meta outperformed its peers in the quarter with the fastest advertising-related revenue growth.
The company’s total third-quarter revenue, 98% of which came from online ads, increased 26% year over year to $51.24 billion, the company’s highest revenue since the first quarter of 2024.
Revenue at Amazon’s online advertising division rose 24% year over year to $17.7 billion, a faster growth rate than the company’s AWS cloud computing division, which reported a 20% increase in revenue.
CEO Andy Jassy emphasized during Amazon’s earnings call that the company continues to expand its advertising-specific demand-side platform to more third-party apps and websites.
“Look at some of the partnerships we’ve entered into. The Roku partnership gives us the largest connected TV presence in the U.S.,” Jassy said. “And when you add to that what we recently did to offer our DSP customers the ability to integrate ad inventory with Netflix, Spotify and SiriusXM, that’s powerful.”
Amazon.com Inc. CEO Andy Jassy speaks during an unveiling event in New York, U.S., Wednesday, Feb. 26, 2025.
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Alphabet’s total advertising revenue was $74.18 billion in the third quarter, up 13% from $65.85 billion a year ago. Online advertising sales for YouTube rose 15% to $10.26 billion in the third quarter.
Microsoft’s search and news advertising division brought in $3.7 billion in the company’s first fiscal quarter, up 14% from $3.2 billion a year earlier.
While there has been some decline in advertising budgets due to economic uncertainty, it is likely that companies have shifted some of that spending from traditional businesses like newspapers to digital advertising platforms, said Jeremy Goldman, senior director of content at Emarketer.
“I think what could happen is more of a given,” Goldman said. “To put your money into social media, and to put your money into retail media, and to put your money into search ads.”
It wasn’t just the megacaps that saw strong online advertising growth this week.
Reddit reported a 68% jump in third-quarter revenue on Thursday, beating analysts’ estimates. The company said global daily active uniques rose 19% year-over-year to 116 million, beating estimates of 114 million.
Snap And Pinterest The results are expected to be announced next week.
Big advances in AI
The tech giants all made it clear that they see no major economic concerns that would justify reducing their AI spending and instead raised their capital spending forecast, despite fears of a bubble.
Alphabet, Meta, Amazon and Microsoft collectively expect to spend over $380 billion in capital spending this year, still a fraction of the $1 trillion worth of data center and cloud computing deals that OpenAI recently announced with its partners such as Nvidia, Oracle and Broadcom.
But while investors cheered Amazon and Google, they were less enthusiastic about Microsoft and especially Meta.
Shares of Facebook parent company plunged 11% on Thursday after the company said it would raise the low end of its capital expenditure guidance to $70 billion to $72 billion from a previous range of $66 billion to $72 billion.
Analysts at Oppenheimer downgraded Meta stock to “hold” from “buy” because they said it was less obvious how the social media company will benefit from its AI investments compared to its big tech rivals that also run cloud computing services.
“Significant investments in superintelligence despite unknown revenue opportunities reflect 2021/2022 Metaverse spending,” the Oppenheimer analysts wrote, comparing the company’s major AI spending related to its Superintelligence Labs to its cost-losing Reality Labs division, which makes virtual reality and augmented reality technologies.
Meta’s chief financial officer Susan Li said during a follow-up earnings call on Wednesday that it was important for the company to invest in AI-related data centers and third-party cloud computing services or risk falling behind, echoing similar comments from CEO Mark Zuckerberg.
“The top priority for the company is to invest our resources to position ourselves as a market leader in AI,” Li said. “This means that I think we may experience some financial pressure in the immediate period ahead, during which our operating profit may fluctuate.”
Meta has continued to point out how its AI investments are improving its online advertising business, but it has had a harder time showing how those spending will benefit the company in the future, Enberg said.
“I think part of it is that we’ve now heard the story quarter after quarter that the company is able to integrate AI into its advertising business and use that as a growth engine,” Enberg said. “What comes next is harder to articulate and far less tangible to investors and other people tracking the space.”
Still, Meta is seeing some growth in new products such as the Meta AI app, which includes AI-powered short video service Vibes, Goldman said.
The company may also expand even more into subscriptions or perhaps even offer enterprise AI services for sale to corporations, which is “an area they haven’t played at all,” he said.
For now, Meta’s digital advertising division remains the company’s core business, and just as in past quarters, it’s unclear how the economy will impact advertising budgets.
As the holiday season approaches, all eyes will be on whether ongoing economic concerns or tariff-related price increases cause consumers to curb spending, which could impact companies’ marketing campaigns.
“The next test will be when we get to the Black Friday numbers,” Goldman said. “Will these fall short of expectations?”
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