Meta wants to automate advertising with AI. What do investors need to know?

Meta Platforms, which owns social networks Facebook and Instagram, plans to fully automate the creation and targeting of advertising thanks to artificial intelligence, according to The Wall Street Journal. Advertising is the company's main source of revenue, thanks to which it continues to fund and implement various AI developments in its platforms. Against the background of the news, shares of advertising companies fell, and quotes of Meta itself, on the contrary, rose to a three-month high.

By the end of next year, Meta plans to fully automate the process of creating and targeting ads using artificial intelligence, reports WSJ, citing sources. Meta wants to develop a tool that will allow brands to create advertising campaigns from scratch: it will be enough to upload an image of the product and specify a budget, and the rest - text, visuals and video - will be created by AI, WSJ sources said. Then the system itself will determine to whom to show the ad, and will adapt it in real time to the context of the viewer. For example, a resident of a snowy region may see a car driving on a mountain road, while a city dweller will see the same car, but against the backdrop of the streets of a metropolis.

AI advertising is the centerpiece of Meta CEO Mark Zuckerberg's ambitious plan to transform the company, WSJ notes. The platform already offers AI tools that can create variations of existing ads and make minor edits to them before launching on Facebook and Instagram. Advertising also remains Meta's main source of revenue, accounting for more than 97% of all revenue in 2024 and continuing to fund Meta's multibillion-dollar investments in AI chips, data centers, and neural network training.

In parallel, new players are actively entering the market. More and more brands are using third-party generative services, such as Midjourney and DALL-E from OpenAI, to create ads for digital platforms, including Meta. Zuckerberg's company does not rule out integrating these tools into its advertising ecosystem as well, WSJ's interlocutors emphasized.

Meta-owned social networks cover 3.4 billion unique active users worldwide, and full ad automation on these platforms could be bad news for big ad companies, notes Investor's Business Daily. Their stocks have already reacted to the WSJ report on Meta's AI ambitions with a drop. For example, quotes Interpublic Group slipped nearly 4% to a two-month low. Shares of Omnicom Group fell by almost 5% (also to a two-month low), and the French Publicis Groupe SA - by 3.8%. Securities of advertising holding company WPP, which owns agencies GroupM, Ogilvy and VM, fell by more than 2%.

Meta's shares, on the contrary, jumped by almost 4% to a three-month high. Since the beginning of the year, Meta's market value has increased by almost 15% - the strongest among the other companies of the «Magnificent Seven» and better than the main U.S. stock index S&P 500. It has added less than 1% over the same periodin the same period.    

Creating ads from scratch with AI can be a real salvation for small and medium-sized businesses - it is they who make up the bulk of Meta's clients and are often organic in the advertising budget, emphasizes WSJ. However, big brands, on the contrary, are wary of giving Meta more and more control over their ad campaigns. They worry that AI-generated ads will be of lower quality and too «unnatural» for humans. Some companies also complain that current AI tools often create distorted or unusable images, and refining them requires significant resources. In addition, Meta's new AI tools require significant computing power and the creation of unique models for each brand, WSJ notes.