Victors and Vanquished in the AI-Driven Advertising Battle in Tech

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Artificial intelligence has significantly impacted digital advertising. Meta and Alphabet both reported sales and earnings that exceeded Wall Street’s expectations, showcasing notable strength in digital ad spending. Meta CEO Mark Zuckerberg mentioned during the earnings call that AI contributed to “greater efficiency and gains across our ad system,” aiding the 22% year-over-year sales increase in the second quarter, which reached $47.52 billion. Meta’s finance chief, Susan Li, also informed analysts during a follow-up earnings call on July 30 that the online ad market seems to have improved since April.

In April, Li observed that Asia-based online retailers curtailed their digital ad spending due to broader macroeconomic uncertainty stemming from geopolitical factors. However, she noted a “notable improvement” this quarter with those Asian e-commerce firms increasing their digital ad spending on the platform, along with small advertisers in North America. “We generally expect another quarter of healthy advertising demand,” Li said regarding the advertising rebound.

Gil Luria, head of technology research at D.A. Davidson, stated that although broader macroeconomic uncertainty persists, “digital advertising in general is performing well; it’s simply an extension of the fact that consumer strength remains robust.” He expressed optimism about continued consumer spending and its positive effects on downstream markets.

Jasmine Enberg, a vice president and principal analyst for eMarketer, observed that Meta’s second-quarter earnings demonstrated how investing in AI can be advantageous when core business performance is strong. The rapid pace of AI investment also shows no signs of slowing. Alphabet has increased its 2025 forecast for capital expenditures to $85 billion, while Meta raised the lower end of its forecast for the year to between $66 billion and $72 billion.

Investors appear confident in Meta and Alphabet’s significant AI investments, as both companies continue to report rising overall sales. Meanwhile, Reddit announced impressive second-quarter sales of $500 million, reflecting a 78% year-over-year increase that boosted its shares substantially. “They kind of rose back like a phoenix and had some extraordinary results,” Luria remarked about Reddit, which had previously seen its shares drop over 15% in February due to a decline in user numbers following algorithm changes.

Reddit’s remarkable performance stands in contrast to similarly sized peers like Snap and Pinterest, which recently posted modest quarterly earnings. Snap’s second-quarter sales rose only 9% year-over-year and missed Wall Street’s estimates on global average revenue per user, with a mishandled update to its advertising platform impacting its growth. Snap’s CEO Evan Spiegel also identified Reddit as a competitor in its latest filings, indicating a potential rivalry.

Meanwhile, Pinterest shares fell over 10% after reporting second-quarter earnings that did not meet expectations. Pinterest’s finance chief, Julia Brau Donnelly, mentioned ongoing tariff-related concerns and broader market uncertainty that may affect ad spending. Unlike Meta, she noted that “Asia-based e-commerce retailers pulled back spend in the U.S.,” highlighting how some advertisers lean towards larger online ad platforms during periods of global economic instability. “There’s very little room for mistakes or missteps,” Enberg stated regarding the quarterly earnings reports from smaller tech firms like Snap and Pinterest.

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