Meta has become the darling of the AI sector in the U.S. stock market, with optimistic expectations for its advertising business, but is reality as investors wish?
Since the beginning of this year, Meta has become a darling of the capital market due to its active layout in the field of artificial intelligence. Despite Mark Zuckerberg announcing a significant increase in AI capital expenditures, Meta's stock price has still risen about 24% against the trend, contrasting with the sluggish performance of Google, Microsoft, and Amazon.
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Behind this is investors' optimistic expectation for the continuous growth of Meta's AI-driven advertising business. Investors generally believe that Meta's investments in AI content creation and advertising targeting tools will drive its advertising business to achieve &#34;sustained growth&#34; in the coming years, and Meta's recent advertising revenue growth has also been relatively strong.
Deepwater Asset analyst Gene Munster pointed out that this is one of the reasons for Meta's stock price performance being better than that of other tech giants. In contrast, Moffett analyst Michael Nathanson believes that the rapid rise of AI applications like OpenAI may reduce Google's future growth in search advertising.
However, there are also analyses that express concerns among advertising industry insiders about the continuous rise in Meta's advertising prices, while the effectiveness has not seen a corresponding improvement. Adam Lovallo from advertising agency BMG360 pointed out that advertising prices (CPM) are continuously rising, but the effectiveness may deteriorate over time. Meta has not shown anything on its roadmap that can release value as it did in the past.
<h2>Doubts About Meta's AI Advertising Effectiveness</h2>
Wall Street analysts have high hopes for Meta. According to data from S&amp;P Global Market Intelligence, Meta's current stock price is 9.5 times its expected sales for the next 12 months, far higher than Google's 5.6 times and Pinterest's 5.8 times. Analysts expect Meta's revenue to grow at an average annual rate of 12% from 2025 to 2029, significantly higher than GroupM's forecast of an average annual growth rate of 8% for social media advertising spending.
According to market research firm eMarketer, in 2024, Meta's Facebook and Instagram will hold a 23% share of the global digital advertising market, while Google will account for nearly 28%. Meta achieved a 21% growth in advertising revenue in the fourth quarter of 2024, far exceeding Google (12.9%), Pinterest (18%), and Snap (16%).
However, it remains unclear how much of this growth can be attributed to its substantial investments in generative AI.
In fact, Meta executives attribute part of the growth to its earlier launched AI tool Advantage+, which is designed to help advertisers better reach their target audiences through automation. Although Meta has recently released several generative AI tools to help advertisers automatically create visual, video, and text content, some advertisers choose not to use these tools because they prefer to have direct control over their advertising campaigns or use AI tools provided by other companies.
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Kate MacCabe, founder and CEO of Flywheel Strategy, pointed out:
<blockquote>
Although Meta offers an AI-driven ad headline suggestion tool, every marketing platform used provides similar features. I see it everywhere, but none of the (platforms) provide any data to prove why it’s good, and emerging brands have a trust issue; they can only &#34;hope this technology will make me successful.&#34;
</blockquote>
Meta's investment in the AI chatbot Meta AI is also noteworthy. This chatbot is based on the Llama large model and is integrated into Meta's various social media applications. Executives stated that Meta AI will help enhance user experience. Theoretically, if users spend more time on the app, it may encourage advertisers to increase their investment.
However, investors should be cautious about the impact of the Meta AI chatbot:
<blockquote>
Google, OpenAI, Anthropic, and Musk's X all offer AI chatbots. Although Meta's chatbot is available to all app users, Google's Gemini is widely distributed in its Gmail service, and OpenAI's ChatGPT also has a broad user base.
</blockquote>
<h2>Meta faces the risk of customers turning to other platforms</h2>
Furthermore, analysis indicates that while some companies prefer to advertise on Meta because its tools are simpler and easier to use than those on platforms like Reddit and Snap, advertisers may eventually grow weary of paying more to Meta without corresponding improvements in performance.
MacCabe stated:
<blockquote>
I’ve noticed some companies are shifting part of their ad spending from social media platforms to channels like email and SMS marketing to establish a more direct relationship with customers. If consumers start using other platforms like OpenAI's ChatGPT to search for new products, businesses may turn to advertising on those platforms.
The fear of the unknown keeps people (on Meta). It doesn’t yield returns like it used to, but we really don’t know what it would be like not to be on Meta, and we need to find answers before turning to other platforms.
</blockquote>
Overall, the outlook for Meta's AI advertising business is not entirely smooth. While investors are confident in its growth potential, concerns from industry insiders, intensified market competition, and shifts in user behavior could pose challenges to Meta's advertising empire. Investors should remain vigilant and carefully assess the real effects and potential risks of Meta AI's advertising business while chasing the AI craze

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Advertisers question the effectiveness of AI advertising, can Meta's advertising "myth" continue?