In the third quarter, Meta's ad business grew at a rate more than double that of Google's Search and other unit, supporting claims that Meta's investments in artificial intelligence are improving brand targeting tools across Facebook and Instagram. Meta's ad revenue reached $63.1 billion, marking a 26% increase from the prior year, while Google's search division brought in $63.4 billion, representing a 12% growth. This 14-point growth gap is the widest in Meta's favor since 2021, although Google received an additional $11 billion in third-quarter revenue from YouTube.
Analysts noted that the rise of chatbots presents a potential challenge to traditional search models. Nate Elliott, an analyst covering AI at Emarketer, told CNBC in an email that "if ChatGPT or Claude or Muse is better at helping them find what they're looking for, people's search habits might change for the first time in a generation. That's potentially catastrophic for Google's ad business." Anthropic's Claude chatbot and Meta's Muse assistant are cited as examples of alternatives to traditional search.
Meta CFO Susan Li reported during the earnings call that in the third quarter, almost 10 million advertisers utilized at least one of Meta's AI tools. Li stated that advertisers adopting the system's recommendations "drove almost 5% more conversions" and "increased their advertising investment by 9% compared with similar non-adopters." As an example, Li cited Simply Organic Maple, a syrup producer, which saw a 57% increase in purchases and a 36% decrease in cost per purchase after using the assistant.
Both companies are aggressively pursuing revenue diversification. Google's cloud computing division reported over 100% growth, generating $31 billion in quarterly revenue, driven by demand for its infrastructure and custom AI chips known as tensor processing units, or TPUs. Conversely, Meta still relies heavily on advertising, which accounts for 98% of its sales, while Google's ad revenue accounts for less than two-thirds of its total revenue.
Market reactions reflected investor concern regarding the companies' substantial spending on AI infrastructure, which has pushed both into negative free cash flow territory. Alphabet experienced its worst day ever on the stock market following its third-quarter earnings report, plunging more than 12% and erasing about $500 billion in market capitalization. Meta's stock also fell 14% in October, marking its worst month since October 2022.
