Big tech is spending big on artificial intelligence. In advertising, the fast-evolving technology is already juicing revenue.
For more than a decade, small businesses and big brands have flocked to digital platforms such as Facebook, Instagram and YouTube. Significant amounts of user data that the tech companies collect helped brands target their customers with ads more precisely.
Now AI is improving ad targeting, helping to accelerate the tech companies' control of the overall advertising market. The results defy the expectations of ad executives and buyers, who had expected an advertising slowdown in light of tariff battles and waning purchasing power among consumers facing higher prices for goods.
U.S. ad spending, including political ads, is expected to increase more than 8.5% this year, according to Brian Wieser, an analyst at Madison & Wall. If current trends in tech-ad growth persist, Wieser said, U.S. spending could grow by as much as 10% in 2025.
AI is helping Meta Platforms and Google keep users on apps such as Instagram and YouTube longer by improving recommendation systems. Meta has said that its AI recommendation systems led to a 5% increase in time spent on Facebook in the third quarter. The more time people spend on the platforms, the more ads companies can serve up.
Meta, Google and Amazon.com are expected to account for more than 56% of the U.S. ad market this year, up from roughly 51% two years ago, Madison & Wall is projecting.
"Although we are in the early innings of AI, we are seeing AI accelerating ad growth for these massive platforms" to unprecedented levels, said Michael Nathanson, a media analyst at MoffettNathanson.
Google's parent, Alphabet, said on a recent earnings call that investment in AI summaries for Google Search drove more queries and search conversations, including commercial queries, which bolsters shopping and ads.
Meta recently said it is incorporating new AI advances into models that underpin its ad recommendations and is working to improve those recommendations.
AI helped bolster the ad performance of Meta by "unlocking greater efficiency and gains," Chief Executive Mark Zuckerberg said on an earnings call.
Google and Meta have rolled out AI ad-creation tools that automate some of the process of launching ad campaigns. That saves money on production, and some companies, including Mondelez International, the Oreo maker, are channeling it back into more media buys.
Google said it is continuing to invest in AI-powered features that are helping creators go from idea to content more quickly, while Meta is aiming to make it possible for brands to create and target ads fully using Generative AI by the end of next year.
There have been some hiccups along the way. The Customer Factory, a marketing agency in the Atlanta area, recently ran Facebook ads promoting its services to potential clients. The agency was surprised when Meta's AI tools added a Hindi song to an ad that targeted dentists.
"We aren't looking to do business in India," said John Nesbit, CEO of The Customer Factory. He said his staffers failed to opt out of using the AI music tool.
"Advertisers who use our music-generation feature always have the opportunity to review the music generated before running their ad," a Meta spokeswoman said.
Showing gains from AI is crucial, as investors pressure tech companies over their spending on AI infrastructure. Meta has warned that it needs more computing capacity than it currently possesses.
In the current climate of corporate cost cutting, businesses are eager to maximize the impact of every advertising dollar, which presents an advantage for technology companies.
AI is boosting the ad industry in other ways, too -- including by making it easier to create new businesses, which then need to pitch themselves to customers. It is the next chapter in a trend that started with the rise of e-commerce, when direct-to-consumer companies emerged at a ferocious pace.
"New business formation is undoubtedly helping to support the growth we are seeing in advertising," Wieser said.