Meta's ad revenue grew 26% in the third quarter to $63.1 billion, more than double Google's 12% search growth to $63.4 billion. The gap marks the widest disparity in Meta's favor since 2021, with the two businesses now nearly equal in size.
Meta credits its AI investments for improved ad-targeting tools on Facebook and Instagram. Chatbots including OpenAI's ChatGPT and Anthropic's Claude are shifting user behavior away from Google Search, reducing clicks on traditional search results and threatening Google's ad revenue model. Meta's recently launched Muse assistant adds to the competitive pressure. Users are spending more time on Instagram, creating more ad inventory for Meta.
Google's Search division reported record query volume in the quarter, but revenue growth slowed as the company deployed AI Overviews and AI Mode that show summarized answers rather than links to other websites. Nate Elliott of Emarketer told CNBC that if AI tools become better at helping users find information, "people's search habits might change for the first time in a generation. That's potentially catastrophic for Google's ad business."
Following its third-quarter earnings miss on Wednesday, Alphabet shares fell more than 12%, erasing about $500 billion in market value. Meta stock fell 14% in October, though it surged 27% in September.
Both companies are spending heavily on AI infrastructure. Google projects up to $205 billion in capital expenditures this year, while Meta expects to spend up to $145 billion. Meta CFO Susan Li said on the earnings call that advertisers using Meta's AI business assistant drove almost 5% more conversions and increased ad spend by 9% compared with non-adopters. Nearly 10 million advertisers used at least one Meta AI tool in the third quarter.
Google's chief business officer said the company is deploying Gemini models across its ads infrastructure to improve advertiser tools and ad quality. Google's cloud division reported over 100% quarterly revenue growth to $31 billion, driven by demand for infrastructure and custom AI chips called tensor processing units. Ads account for less than two-thirds of Google's revenue, while Meta relies on ads for 98% of sales.
Analysts at UBS wrote that Google's search cannibalization fears are intensifying because of Meta's ad strength and the threat from AI assistants. Wedbush analysts noted that Google shares are "unlikely to work until the search narrative changes," requiring new ad products and proof that Google can monetize in the evolving AI era.