Meta Corporation (recognized as an extremist organization in Russia) is showing an impressive surge, narrowing the gap with Google in advertising revenue to a historic low. However, despite the rapid momentum, institutional investors are still betting on Alphabet shares, and there are good reasons for that.
In the second quarter, Meta's advertising revenue reached $59.36 billion, showing a 27% year-over-year increase. For comparison, Google Search & other segment brought Alphabet $63.27 billion, which is only 17% higher than last year's figures. Thus, the gap between the companies has narrowed to $3.9 billion — a year ago it was almost twice as large.
AI — the main growth catalyst
The key driver of Meta's acceleration was artificial intelligence algorithms. Improved recommendation and targeting systems allowed the company to increase ad impressions by 14% and raise the average cost per click by 12%. In essence, Meta captured almost half of all new digital advertising dollars that appeared on the market during the quarter.
At the same time, Alphabet is not sitting idle. Google's total advertising revenue, including YouTube and the partner network, amounted to $81.63 billion, and the cloud division showed phenomenal growth of 82%, reaching $24.8 billion. It is this diversity of business models that attracts investors.
Why investors are in no hurry to buy Meta
Despite the fact that Meta shares have become cheaper over the year, while Alphabet's stock has risen, Wall Street analysts maintain cautious optimism about both companies. According to consensus forecasts, 38 experts recommend buying Alphabet shares, and none advise selling them. The average target price is $752.61.
The main argument in favor of Alphabet is Meta's lack of its own cloud business that could demonstrate to investors the return on investments in AI infrastructure. Meta derives its main benefit from AI exclusively through advertising, whereas Alphabet monetizes technologies across several areas at once.
The next stage of Meta's development will be the launch of Business Agent — a service already used by more than 1 million companies in WhatsApp and Messenger. Plans include integration with Instagram and the introduction of paid tiers. Meta has a faster advertising engine, but Alphabet has more ways to make money directly from AI.
My view: Meta's current momentum is impressive, and overtaking Google Search in advertising revenue as early as this year looks like a quite realistic scenario. However, for long-term investors, Alphabet's diversified model with its growing cloud business remains a more reliable bet in an era when AI requires colossal capital investments.