Meta, Applovin, and Snap stocks are strong, advertising remains the most reliable!

The advertising market has significantly recovered, driving strong stock price increases for several technology companies.

On Thursday, shares of artificial intelligence advertising technology company AppLovin soared 24% after releasing better-than-expected fourth-quarter earnings, reaching an all-time high; Meta's stock rose for the nineteenth consecutive day, accumulating an increase of about 22% this year; Snap's stock also showed positive momentum.

AppLovin is an online application gaming and advertising technology company that profits through e-commerce advertising via mobile apps and gaming platforms. According to the earnings report, the company's advertising revenue surged 73% in the fourth quarter, reaching nearly $1 billion. AppLovin provides AI-driven advertising software and stated that improvements to its AI models are still in the early stages, with plans for more personalized ad placements in the future.

Meanwhile, Meta and Alphabet also demonstrated growth in their advertising businesses in recent earnings reports.

Meta reported fourth-quarter advertising revenue that exceeded analysts' expectations on January 29. Chief Financial Officer Susan Li stated during a conference call with investors that the company "continues to see strong demand from advertisers, particularly for AI tools that are helping businesses maximize the value of their advertising spend."

Snap, the parent company of Snapchat, announced on February 4 that the number of active advertisers in the fourth quarter more than doubled, while Alphabet, Google's parent company, reported fourth-quarter advertising revenue that also surpassed Wall Street's expectations.

Raymond James analyst Andrew Marok pointed out, based on the earnings reports from Alphabet, Meta, and Snap, the online advertising market is performing well overall. Wedbush analyst Michael Pachter commented, "The performance of the advertising business in the fourth quarter is simply astonishing." He raised AppLovin's target price from $545 to $620 and maintained an "outperform" rating.

Not long ago, the term "advertising recession" was circulating. In 2021, Apple took measures to limit targeted advertising on its mobile devices to protect consumer privacy. This measure, along with concerns about the overall economic environment, impacted the advertising industry.

In the wake of this shock, Wall Street will closely monitor the strength of the advertising market. Persistent inflation, high interest rates, and potential tariffs may put pressure on consumers.

If consumer spending decreases, advertisers' spending will also decline, but for now, the U.S. economy remains in good shape, with consumers continuing to spend and the advertising industry staying strong. Webush analyst Scott Devitt stated, "The online advertising market is healthier than ever."

Advertising business drives Meta's stock to outperform other tech giants

The rise in Meta's stock price stands in stark contrast to the stock performance of other tech companies with similarly large artificial intelligence capital expenditure plans, such as Google, Microsoft, and Amazon.

So far this year, Microsoft's stock has fallen nearly 2%, Alphabet, Google's parent company, is down 1.4%, and Amazon has risen 4.6%.

Gene Munster, managing partner at Deepwater Asset Management, believes that one reason for the differing performance is that investors believe Meta's investments in developing new AI content creation and ad targeting tools will drive "sustained growth" in its advertising business over the next few years.

In contrast, the outlook for other tech giants that have invested heavily in AI is less optimistic.

For example, MoffettNathanson analyst Michael Nathanson stated in a report that the rapid rise of OpenAI and other AI applications "could dampen Google's future search ad growth."

Currently, Wall Street has high expectations for Meta. According to data from S&P Global Market Intelligence, analysts expect Meta's average annual revenue growth rate to reach 12% between 2025 and 2029, significantly higher than GroupM's forecast of an 8% average annual growth rate for social media ad spending.

However, insiders in the advertising industry are cautious about the long-term prospects for Meta's ad growth. Adam Lovallo, vice president of BMG360 advertising agency, pointed out that while Meta's ad prices continue to rise, the effectiveness has not improved correspondingly.

Meta is heavily investing in generative AI tools to help advertisers automatically create visual, video, and text content. However, many advertisers choose not to use these tools, citing reasons such as a desire for more direct control over their advertising campaigns or opting for AI tools provided by other companies. Kate MacCabe, founder and CEO of Flywheel Strategy, stated that there has yet to be evidence that Meta's investments in AI can unlock value as they have in the past