Earnings Reports Reveal Big Tech’s Quiet Digital Ad Boom

Fueled by an escalating arms race in artificial intelligence, tech titans are witnessing a resurgence in their digital advertising businesses, defying earlier anxieties about economic headwinds. The latest quarterly earnings reports from Meta, Amazon, Alphabet, and Microsoft showcase robust revenue growth in their respective ad segments, signaling a stabilization and even a renewed vigor in the digital advertising landscape.

This surge in online advertising sales has quelled concerns that economic turbulence, previously amplified by geopolitical factors and trade uncertainties, would significantly curtail ad budgets. Jasmine Enberg, co-founder of Scalable, a media firm focused on the creator economy, observes, “The digital ad market is demonstrably strong. Current economic instability appears to be priced in, almost representing a new status quo.”

Meta emerged as the frontrunner, reporting the most impressive ad-related sales growth among its peers. The company’s third-quarter revenue, 98% of which is generated from online advertising, soared by 26% year-over-year to $51.24 billion – marking Meta’s highest sales figure since the first quarter of 2024. This performance underscores Meta’s effective leveraging of AI to enhance ad targeting and personalization, driving increased value for advertisers.

Amazon’s online ad unit also experienced substantial growth, with revenue surging 24% year-over-year to $17.7 billion. Notably, this growth rate surpassed that of Amazon’s AWS cloud computing unit, which saw sales rise by 20%. During Amazon’s earnings call, CEO Andy Jassy highlighted the company’s ongoing efforts to expand its ad-specific demand-side platform (DSP) to encompass more third-party apps and sites. The expansion into Connected TV through partnerships will allow Amazon to further enhance targeting of ads.

“The Roku partnership gives us the largest connected TV footprint in the U.S.,” Jassy stated. “The integration with ad inventory in Netflix and Spotify and SiriusXM provide powerful opportunities for our DSP customers.” This strategic diversification into new channels allows Amazon to capture a wider audience and offer advertisers more comprehensive reach.

Alphabet’s overall advertising sales for the third quarter reached $74.18 billion, reflecting a 13% increase from the $65.85 billion recorded a year prior. Specifically, YouTube’s online ad sales rose by 15% to $10.26 billion. Alphabet’s sustained dominance in search advertising, coupled with YouTube’s increasing influence in video advertising, continues to solidify its position in the digital advertising ecosystem.

Microsoft’s search and news advertising unit generated $3.7 billion in the company’s fiscal first quarter, a 14% increase from the $3.2 billion reported the previous year. The integration of AI into Bing and its advertising platform has likely contributed to this growth, enabling more relevant and personalized ad experiences.

Jeremy Goldman, senior director of content at Emarketer, suggests that even with some pullback in overall marketing budgets, advertisers are strategically reallocating funds from traditional channels to more effective digital platforms. “The shift towards digital is a no-brainer,” Goldman explains. “Advertisers are prioritizing social media, retail media, and search ad spending, where they can achieve greater measurability and ROI.”

The trend extends beyond the tech behemoths. Reddit reported a remarkable 68% jump in third-quarter sales, exceeding analyst expectations, driven by a 19% year-over-year increase in global daily active uniques, reaching 116 million. Upcoming earnings reports from Snap and Pinterest will further illuminate the state of the broader digital advertising market.

Going big on AI

Underscoring their commitment to AI, tech giants have dismissed concerns about economic headwinds impacting their AI investments. Instead, they have increased capital expenditure guidance, even amidst speculation of an AI bubble. Alphabet, Meta, Amazon, and Microsoft collectively anticipate capital expenditures exceeding $380 billion this year. This contrasts with OpenAI’s ambitious data center and cloud computing deals, valued at $1 trillion, with partners like Nvidia, Oracle, and Broadcom.

While investors have generally applauded Amazon and Google’s strategies, Microsoft and Meta have faced more tepid reactions. Meta’s stock plummeted by 11% following the announcement of increased capital expenditure guidance, now ranging from $70 billion to $72 billion, up from the previous range of $66 billion to $72 billion.

Oppenheimer analysts downgraded Meta’s stock, citing uncertainty about the company’s ability to monetize its AI investments compared to competitors with established cloud computing services. The analysts drew parallels between Meta’s AI spending, particularly within its Superintelligence Labs, and its previous investments in the Reality Labs division, which focuses on virtual and augmented reality technologies, suggesting possible unrealized benefits. The high investment without clear path to revenue generation raises concerns about capital allocation efficiency.

Susan Li, Meta’s finance chief, emphasized the strategic importance of investing in AI-related infrastructure to remain competitive. “The highest priority for the company is investing our resources to position ourselves as a leader in AI,” Li asserted. “For the immediate period, we anticipate potential financial pressure and lumpy operating profit.”

While Meta consistently highlights the positive impact of AI on its online advertising business, demonstrating a clear path to realizing returns remains an ongoing challenge, according to Enberg. “We’ve heard consistently of their ability to integrate AI into their ad business and use that as a growth engine,” she stated. “What comes next is harder to articulate, and far less tangible for investors and other people who follow the space.” The unclear potential from AI is what concerns investors most.

Meta is also experiencing growth in emerging products, such as the Meta AI app and Vibes AI-powered short video service, offering potential avenues for future revenue diversification, noted Goldman.

The company could explore subscription models or offer enterprise AI services to corporations, representing untapped opportunities, he suggested.

For now, Meta’s digital advertising unit remains its core business, and as in prior quarters, the broader economy’s influence on ad budgets remains a pivotal variable.

As the holiday season approaches, attention will focus on whether ongoing economic uncertainties or tariff-related price increases dampen consumer spending, potentially impacting corporate marketing strategies. “The next test will be when we get to the Black Friday numbers,” Goldman concluded. “Are those going to be below expectations?”