The Finance Class

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Tag: Meta

  • AI Is Helping Meta Sell More Ads — While Google Search Growth Slows to 12%

    AI Is Helping Meta Sell More Ads — While Google Search Growth Slows to 12%

    Introduction

    Two of the biggest advertising companies in the world just reported very different quarters. Meta’s advertising business is growing fast, helped by artificial intelligence. Google’s search business is still growing, but more slowly — and AI is part of the reason.

    What Happened

    Meta reported $63.1 billion in advertising revenue for the third quarter of 2026, up 26% from a year earlier. Total company revenue was $64.6 billion, also up 26%. The number of ads people saw rose 10%, and the average price of an ad rose 14%.

    Alphabet, Google’s parent company, reported $127.6 billion in total revenue, up 25%. But Google Search and other revenue grew 12% to $63.35 billion. That is solid growth in normal terms, yet it is clearly slower than Meta’s advertising growth — and slower than Google’s own search growth in recent quarters.

    Key figures

    • Meta advertising revenue: $63.1 billion, up 26%
    • Meta ad impressions: up 10%; average ad price: up 14%
    • Meta total revenue: $64.6 billion, up 26%
    • Google Search and other revenue: $63.35 billion, up 12%
    • Alphabet total revenue: $127.6 billion, up 25%
    • Google Cloud revenue: $30.71 billion, up 103%

    Why It Happened

    Meta says AI is making its ads work better. When ads are shown to people who are more likely to be interested, advertisers are willing to pay more, and more of those ads lead to a sale or a sign-up. Meta also pointed to more user engagement across Facebook, Instagram and its other apps.

    Google’s story is more mixed. Alphabet said search query growth was the fastest in five years, helped by AI. But more questions do not automatically mean more advertising money. Google’s chief business officer said AI Mode searches — where an AI answer appears instead of a simple list of links — currently bring in less advertising revenue than a traditional search. Foreign exchange was also the largest single factor in the slowdown, the company said.

    In plain terms: people are searching more, but the new kind of search is harder to turn into ad money, at least for now.

    Why It Matters

    Advertising pays for most of what these companies offer for free. If Meta can keep improving ad performance with AI, it has a strong engine for profit, even while it spends heavily on AI data centres. Meta guided fourth-quarter revenue to between $73 billion and $76 billion.

    For Google, the question is different. Search is still a huge business — $63.35 billion in one quarter is enormous. But investors are watching closely: can Google make AI search pay as well as old-fashioned search did? Google only started showing ads alongside AI Mode searches worldwide on October 29, so that part of the story is just beginning.

    What Happens Next

    Watch two things. First, whether Meta’s ad prices keep rising without scaring advertisers away. Second, whether Google’s AI Mode advertising starts to close the gap between fast query growth and slower revenue growth. The next earnings reports will give a clearer answer.

    Final Thoughts

    AI is not helping every big tech company in the same way. Right now, it is boosting Meta’s core business directly. For Google, AI is bringing more users and more questions, but the money side is still catching up. That difference explains a lot about how these two giants are being judged today.

    Related: Why Google Stock Crashed 12.6%: What Investors Need to Know

    Disclaimer: This article is for educational and informational purposes only and does not constitute financial advice.

    Sources: CNBC, https://www.cnbc.com/2026/11/01/ai-meta-ads-google-search.html ; Meta Q3 2026 results as reported by Exchange4Media, https://www.exchange4media.com/digital-news/metas-ad-revenue-jumps-26-to-631-billion-as-ai-boosts-conversions-ad-prices-159351.html ; Alphabet Q3 2026 results as reported by NeoTeo, https://www.neoteo.com/en/alphabets-q3-2026-results-search-and-cloud-grow-free-cash-flow-is-negative

  • S&P Cuts Meta’s Outlook to Negative as AI Spending Hits $140 Billion

    S&P Cuts Meta’s Outlook to Negative as AI Spending Hits $140 Billion

    S&P Global Ratings has cut its outlook on Meta Platforms to negative, a warning that the Facebook and Instagram owner’s huge spending on artificial intelligence could strain its finances for years.

    The rating itself did not change. S&P kept Meta’s AA- credit rating, one of the strongest grades a company can hold. But the outlook moved from stable to negative on Friday, October 30. In plain terms, that means S&P now sees a real chance of a downgrade within the next couple of years, not that a downgrade has already happened.

    What Happened

    S&P said it was worried about two things: how long Meta’s capital spending will stay very high, and how long its free operating cash flow will stay negative. Free operating cash flow is, simply, the cash left after a company pays for the things it needs to run and grow. When that number is negative, the company is spending more cash than it brings in from its operations.

    S&P now expects Meta’s capital spending — money spent on long-term assets such as data centres — to reach about $140 billion in 2026 and rise above $225 billion in 2027, reaching $252 billion in 2028. It also expects a free operating cash flow deficit of $71 billion in 2027.

    Meta’s own guidance points in the same direction. Last week the company forecast full-year 2026 capital spending of $135 billion to $145 billion, after reporting a third-quarter free cash flow deficit of $2.12 billion. That was its first negative quarter for free cash flow in more than a decade.

    Why It Happened

    The reason is the AI buildout. Meta is building data centres and buying computing power so its AI tools can run and improve. That costs a fortune, and the payoff is not instant.

    S&P put it bluntly: “Meta’s ability to monetise its AI investments is more limited than that of its peers.” Microsoft and Google can sell AI computing directly to other companies through their cloud businesses. Meta has no equivalent product. Its bet is that better AI will make its ads and apps more valuable, which is harder for a credit analyst to measure.

    S&P also pointed to leverage, which compares debt with earnings. It said Meta’s leverage could climb above 1.0 times as early as 2027, up from about 0.1 times last year. That 1.0 level is the threshold S&P watches for the AA- rating. Much of the rise comes from leases on data centres, which S&P counts in a similar way to debt.

    Why It Matters

    A credit rating affects how cheaply a company can borrow. A lower rating usually means higher borrowing costs. Meta is not in trouble today — AA- is still a very strong rating, and even a one-notch downgrade would leave it firmly in high-grade territory. But the warning matters because it shows that even the biggest tech companies are now being judged on whether their AI spending pays for itself.

    This is not just a Meta story. Investors spent October asking the same question about Alphabet, Amazon, Microsoft and others: how much are they spending, and when will it come back as profit? That worry helped drive the Nasdaq down 5.3% in October, its worst month since March 2025.

    What Happens Next

    Meta disagreed with S&P. A spokesperson said: “We respectfully disagree with S&P’s assertion about Meta’s AI monetisation capabilities. We see significant product and business opportunities ahead of us, supporting our very strong credit profile.”

    S&P said it could still downgrade Meta if spending stays high and free cash flow stays negative past 2028, or if leverage stays above 1.0 times. On the other side, if Meta shows it can slow its spending or turn its AI tools into clear revenue, the outlook could steady again.

    Final Thoughts

    Think of it like a household that takes on a big mortgage to build an extension. The house may be worth more in the end, but while the building work goes on, the monthly bills are high and there is less cash spare. S&P is not saying Meta cannot afford the extension. It is saying the building phase may last longer, and cost more, than it first expected — and lenders are starting to notice.

    Key figures:

    • Meta’s credit rating: AA-, affirmed; outlook cut to negative from stable (October 30, 2026)
    • S&P’s expected capital spending: about $140 billion in 2026, above $225 billion in 2027, $252 billion in 2028
    • Meta’s own 2026 capital spending guidance: $135 billion to $145 billion
    • Meta’s third-quarter free cash flow: negative $2.12 billion
    • S&P’s expected 2027 free operating cash flow deficit: $71 billion
    • Leverage: about 0.1 times last year, could pass 1.0 times as early as 2027

    Disclaimer: This article is for educational and informational purposes only and does not constitute financial advice.

    Sources: CNBC report on S&P’s Meta outlook change (via CNBC TV18: https://www.tradingview.com/news/cnbctv:4903003dd094b:0/); Reuters report on S&P’s action (https://941theduke.com/2026/10/30/sp-global-revises-outlook-on-meta-to-negative-on-cashflow-concerns/)

    Related: Nasdaq Ends October With Its Worst Month Since March 2025 as Tech Sell-Off Deepens

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