Meta Is Catching Google in Ads. Which Stock Does Wall Street Favor?
TREE NEWS reports: Meta Platforms (META) reported a 27% surge in ad revenue to $59.4 billion for the latest quarter, narrowing the gap with Alphabet’s (GOOGL) Google Search, which posted $64.6 billion in ad sales. Despite this impressive growth, Meta’s stock has been under pressure recently. The common narrative blames soaring capital expenditures on AI infrastructure, but a closer look suggests the real issue lies elsewhere—specifically in rising depreciation costs and margin compression.
News Summary
Meta’s ad business is booming, fueled by AI-driven ad targeting and Reels monetization. However, its stock fell after earnings as investors focused on a 42% year-over-year increase in total costs, driven by higher infrastructure expenses and depreciation. Alphabet, while growing slower (Google Search ads up 12%), has seen its stock perform better due to more disciplined cost management and a robust cloud business.
Industry Analysis
The ad duopoly is evolving. Meta’s AI investments are clearly paying off in engagement and ad conversion, but they come with a heavy price tag. Depreciation alone jumped 34% to $7.9 billion, and this is expected to rise further as Meta’s AI clusters come online. Wall Street is rewarding Alphabet for its more balanced approach—Google Cloud grew 35% and is now a meaningful profit contributor, whereas Meta’s Reality Labs continues to bleed cash.
From a valuation perspective, Meta trades at ~24x forward earnings, while Alphabet sits at ~20x. Despite Meta’s higher growth, the market is assigning a discount due to uncertainties around AI monetization and regulatory risks (antitrust, privacy). Meanwhile, Alphabet’s diversified revenue streams and share buybacks provide a safety net.
Forward-Looking Perspective
For investors, the question is not just who is winning the ad war, but who can sustain profitability while investing heavily in AI. Meta’s aggressive spending could pay off if AI-driven recommendations keep boosting ad prices, but any slowdown in user growth or regulatory crackdown could amplify the pain. Alphabet, with its search dominance and cloud optionality, appears better positioned to weather the storm. We expect the gap in ad revenue to keep narrowing, but stock performance will diverge further if Meta fails to translate its AI edge into consistent margin expansion.
