During the final week of October, some beloved mega-cap growth stocks step into the earnings confessional. Those reports could provide valuable insight into highly monitored trends such as AI and internet advertising spending.
The Invesco QQQ Trust (QQQ ) and the Invesco NASDAQ 100 ETF (QQQM ) are among the ETFs most often discussed regarding the AI theme. But their leverage to internet ad spending is undeniable for a simple reason. And that’s that these funds allocate about 10% of their weights to Meta Platforms (META) and Google parent Alphabet (GOOG). These companies that dominate the internet ad market.
Those are the two largest communication services in QQQ and QQQM. And their third-quarter earnings updates are fast-approaching. Alphabet reports after the close of U.S. markets on Oct. 29. Meta delivers results for the September quarter the following day.
AI, Advertising Commentary Pivotal
Both AI and internet advertising commentary could be in focus when Alphabet and Meta deliver quarterly results. In a recent note to clients, Deutsche Bank analyst Benjamin Black said that while there’s some murkiness around online ad spending, checks suggest Meta is still thriving in that space.
“Our checks indicate that Meta continues to gain share as advertiser budgets shift to the most performant platforms, and we believe Meta’s AI-driven campaign optimization, such as Gen AI ad creative tools, are driving efficiency for advertisers, reducing the friction of managing campaigns,” noted the analyst.
He added that when looking at the current quarter, Meta could post YoY revenue growth of 15.5%, implying the company’s top line could come in around $48 billion, which is the high end of the previously projected range.
Looking at Alphabet, the analyst said AI-driven enhancements could be sources of growth for YouTube and the company’s already dominant internet search business, adding that third-quarter results for those units could be compelling.
“Our recent ad-checks suggest that Google Search y/y growth accelerated in the 3Q. Given that, we are of the view that the buy-side bogey for Google search revenue growth has gravitated to roughly 12-13% y/y, above our estimate of 12% y/y and the Street at ~11.5% y/y. After 2Q’s underperformance at YouTube, 3Q revenue expectations have softened, lowering the bar for the print,” observed Black.
“We estimate 3Q YouTube revenue to grow 12% y/y, in line with the Street and slightly below buy-side bogeys for low-teens growth. Additionally, indications are that GCP continues its strong growth as AI solutions broaden the product set for clients, driving our estimate for GCP revenue to grow 30% y/y in 3Q, ahead of street estimates by ~1.5%,” he added.
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