India – 2025/05/13: In this illustrated photo, the meta logo is displayed on a smartphone with the Google logo in the background.
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google and Facebook have been the dominant internet brands for the past two decades, converting billions in attention into trillions in ad spend over that time. But as the ChatGPT era changes the way consumers interact online, the two companies are starting to diverge.
Meta’s advertising business grew more than twice as fast as Google’s search and other divisions in the third quarter, supporting Mark Zuckerberg’s assertion that the company’s investments in artificial intelligence are giving brands better targeting tools to promote their products and services on Facebook and Instagram.
Google’s problem is that chatbots are becoming an alternative to search, and consumers are clicking far fewer blue links, hurting Google’s ad revenue. antropic The Claude chatbot and Meta’s recently released Muse assistant add even more options. Meanwhile, users are spending more time scrolling on Instagram, giving Meta more advertising opportunities.
“This is a double-edged sword because as AI revolutionizes discovery, people may find a tool they like better than Google,” Nate Elliott, an analyst covering AI at Emarketer, told CNBC in an email. “If ChatGPT, Claude, and Muse are better at helping people find what they’re looking for, it could change people’s search habits for the first time in a generation. That could be devastating for Google’s advertising business.”
Meta’s ad revenue for the quarter rose 26% year over year to $63.1 billion, compared to Google’s search division’s 12% increase to $63.4 billion. This 14-point growth difference is the most favorable for Meta since 2021, and although Google earned an additional $11 billion in Q3 revenue from YouTube, the two companies are evenly matched in terms of size.
Following Wednesday’s disappointing third-quarter earnings report, Alphabet had its worst day ever on the stock market, plummeting more than 12% and wiping out about $500 billion in market capitalization. Mehta isn’t necessarily a Wall Street darling at the moment. Stocks fell 14% in October, the worst month since October 2022. It then rose 27% in September, the best month since November of the same year.
Investor reaction reflects market turmoil over the companies’ AI expansion, with both businesses in negative free cash flow territory. Questions swirl about whether historic levels of spending on AI infrastructure will yield sufficient returns.
Meanwhile, both Meta and Google are actively working to diversify their revenue streams. Meta still relies almost entirely on advertising for its revenue and is pouring money into AI models and agents as it looks to build a subscription business. Google already has a large and rapidly expanding cloud computing division, and it just reported quarterly revenue growth of more than 100% to $31 billion, driven by demand for its infrastructure and custom AI chips called tensor processing units (TPUs).
After Apple’s revival
The benefits of online advertising and the huge profits that come with it have catapulted both companies to leadership positions, with market capitalizations reaching trillions of dollars.
Meta needed AI to bring its advertising business to life. apple’s iOS privacy changes in 2021 significantly limited the company’s ability to target users on iPhone. The following year, Meta’s revenues declined for the first and only time in the company’s history.
OpenAI’s ChatGPT was announced in late 2022, ushering in a new era of generative AI technology. Although Meta initially struggled to find a consistent AI strategy and fell far behind OpenAI and Anthropic in developing frontier models, the company has successfully incorporated AI into its advertising products, giving brands advanced tools to efficiently reach users.
A year ago, the company introduced Meta AI Business Assistant, which advertisers can plug into their Ads Manager system to help build campaigns and improve performance. Meta’s chief financial officer, Susan Lee, said on an earnings call last week that advertisers who adopted the system’s recommendations saw “nearly a 5% increase in conversions” and “a 9% increase in advertising investment” compared to similar companies without the system.
Lee gave the example of syrup producer Simply Organic Maple, which said the assistant increased the number of purchases by 57% and reduced the cost per purchase by 36%. He added that about 10 million advertisers used at least one of the company’s AI tools in the third quarter.
Google has a similar opportunity by leveraging AI in its advertising products across its services, including YouTube.
Google Chief Business Officer Philipp Schindler said on an earnings call that the company is rolling out the Gemini model “across its advertising infrastructure,” adding tools for advertisers and improving ad quality.
However, Google’s search engine competes directly with ChatGPT and Claude by showing more results through AI Overview and AI Mode, where users primarily get overviews rather than links to other sites. Google said the number of search queries rose to a record in the quarter, but revenue growth has slowed.
“This will bring search cannibalization concerns back to the forefront, exacerbated by META’s advertising strength this quarter and the lingering Muse/Agent threat,” UBS analysts wrote in a note after Google’s earnings.
Both companies are extremely bullish on the potential of AI, plowing hundreds of billions of dollars into the infrastructure needed to build new models and services. Google expects to spend up to $205 billion in capital spending this year, while Meta expects to spend up to $145 billion.
Advertising remains important, but both companies are investing in a future that could be very different. Google is much more advanced in terms of diversification, with advertising accounting for less than two-thirds of its revenue, while Meta still relies on advertising for 98% of its revenue.
Still, Wedbush analysts see search monetization at Google as important to their investment thesis.
“GOOGL stock is unlikely to perform until the search narrative changes,” analysts said in a report Thursday. “And, as always, they will need new advertising products and proof points that can be monetized in the evolving AI era.”
—CNBC’s Jonathan Vanian and MacKenzie Sigalos contributed to this report.
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