It's earnings season again, and we’re witnessing the usual parade of corporate updates and analyst calls where tech executives try to sound humble while bragging about billions.
And
if you would look at the top lines, you’d think everything is fine.
Alphabet this week reported Q2 revenue of $119.8 billion. Google Search grew, YouTube ad dollars jumped 13% to $11.1
billion, and Alphabet’s cloud business keeps growing.
Next week is Meta’s turn, with Wall Street expecting around $60 billion in quarterly sales, up from $56.3 billion in Q1. The
ad money keeps flowing in. The automated ad tools keep working, and people keep scrolling.
So all is good? Hold that thought.
Wall Street understands current ad revenues but is getting
increasingly nervous about two massive headwinds: a staggering AI spending spree, and a wall of global regulation and court cases.
Exhibit one: While Alphabet beat Wall Street’s revenue
and profit targets, its stock fell more than 4% after hours. Why? Because management raised its 2026 capital expenditure target from an eye-watering $195 billion to $205 billion, to build out AI data
centers. Wall Street saw those cash burn numbers and started ditching.
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Meta faces the exact same investor pushback. Zuckerberg has committed to spending between $125 billion and $145 billion
on AI infrastructure this year alone. Investors are openly asking when these multibillion-dollar investments will start to translate into tangible profit margins, rather than just eating up cash flow.
The metaverse hangover is real!
And while Wall Street frets over capex, the regulatory environment continues to evolve as well. Europe is leading the way again. France passed a law this week
banning children under 15 from using social media, with no new account creation starting this September; platforms must wipe out existing underage accounts by early 2027. France is the first EU
country to do this, but Spain, Denmark, and the U.K. are already lining up to take the same step.
And then there are the fines. European regulators just hit Google with a massive €890
million penalty under the Digital Markets Act. That is about $1 billion in U.S. dollars. Meta is fighting a $220 million fine in Nigeria, while facing EU warnings that could trigger penalties of up to
10% of its global turnover over user tracking and AI tools.
History shows us that whenever tech platforms hit operational disruptions or inventory limits, they don't reduce prices. Instead,
they introduce new automated formats and adjust auction dynamics.
Ten years ago, Meta and Alphabet CPMs averaged between $3 and $6. A pandemic, Apple’s App Tracking Transparency (cutting
off the cross-app tracking signals Meta relied on), and a surge in AI investments later, Meta’s core products are up roughly 180%, with a CPM of $11 to $16. YouTube is up 80%. Over the same
10-year period, the U.S. Consumer Price Index grew roughly +39%.
Expect ad prices to keep climbing. Expect platforms to push you toward fully automated campaign setups so they can monetize
lower-quality ad space you should avoid. And expect user targeting to get fuzzier as privacy laws strip away tracking signals.
Ad space in walled gardens operates in a hyper-inflationary
micro-economy. If your marketing budget only grows at the rate of standard economic inflation, your actual media buying power shrinks every single year. The only real levers left to drive positive ROI
are creative quality, first-party data integration, and strict incrementality testing. Good luck!