UBS thousand word outlook on the digital advertising market: AI ignites a frenzy of budget growth "U-shaped recovery" is just around the corner.

UBS Group AG recently released a research report stating that the global digital advertising market is set to move towards a strong growth trajectory of "U-shaped recovery", with the technology reconstruction and productivity transformation of digital advertising platforms driven by Artificial Intelligence (AI) being the core development trend in the next 3-5 years. A survey conducted by UBS Group AG covering numerous advertisers worldwide shows that after experiencing budget growth at the beginning of the year, the growth rate of the digital advertising market in 2025 was relatively sluggish in April-May due to the unprecedented tariff battles launched by the Trump administration globally, but it began to accelerate from June onwards. It is expected that with the accelerating penetration of AI-driven advertising tools, along with the relief of macro uncertainties (such as tariffs) and the resilience shown by consumer demand, there is a possibility of a large-scale release of advertising budgets in the second half of the year. UBS Group AG stated in the research report that many marketers around the world tend to use up their annual budgets rather than waste them, so the probability of accelerated advertising spending in the second half of the year has increased. This judgment is reflected in UBS Group AG's new full-year forecast for 2025: the expected growth rate of digital advertising budget has been raised from the original 9.3% to 11.0%, almost returning to the level at the beginning of the year. Given the significantly better trend of advertising budgets in the second quarter than expected, UBS Group AG no longer believes in the extreme scenario of advertising spending "declining" in the second half of the year. UBS Group AG's analyst team expects one of the strongest monetization paths for AI technology to be the "AI + digital advertising" increasingly mature business model. For example, the application of generative AI software ecosystem significantly improves the efficiency of advertising delivery (Advantage+ by Meta reduces 30% of manual costs and greatly improves the efficiency of the entire digital advertising chain), interactive ads (efficient interaction mode between advertisers driven by AI chat Siasun Robot & Automation and digital advertising platforms) driving incremental budgets for ad placement, and TTD Kokai's AI real-time bidding system delivering a 15% increase in ROAS (return on advertising spend) for long-tail advertisers. Overall, UBS Group AG expects the continuous improvement in advertising budgets in the third quarter to set the tone for the year-end push, and advertisers are expected to increase their investment by the end of the year to ensure the budget is fully utilized. This is expected to drive the growth rate of the digital advertising industry back to double-digit levels for the entire year, potentially achieving a U-shaped reversal in the market. In terms of stocks related to digital advertising, UBS Group AG has issued a "buy" rating for Meta, the parent company of Facebook (META.US), and The Trade Desk (TTD.US), which has just joined the S&P 500 index, with target prices significantly higher than the current trading prices of these two tech giants. At the same time, it also reiterates a "neutral" rating for Alphabet Inc. Class C, the parent company of Alphabet (GOOGL.US), with a slight upward revision of the 12-month target price for Alphabet to $192 (previously $186). The integration of AI and advertising has become a core theme in the digital advertising field since ChatGPT became popular globally in 2023. Major digital advertising industry leaders such as Alphabet Inc. Class C and Meta have quickly introduced generative AI technology into their advertising systems, innovating in ad delivery optimization and content presentation. On the Alphabet Inc. Class C side, in addition to AI search summaries and Performance Max, machine learning algorithms have also been embedded in its advertising network and cloud services to improve delivery efficiency; Meta leverages AI to improve advertising return on investment (ROI) (such as using machine learning to improve ad ranking and actual efficiency conversion), and explores generative AI to create content to enhance user engagement and ad diversity. UBS Group AG emphasizes that the structural impact of AI integration has begun to emerge: on the one hand, AI helps improve the targeting accuracy and conversion efficiency of digital ad delivery, driving advertisers to achieve higher ROI (as seen from the rapid adoption of products like Performance Max); on the other hand, AI-generated content and answers could divert some traffic, leading to a reassessment of the value of traditional ad inventories (e.g., increased ad display frequency based on Alphabet Inc. Class C's search pattern but decreased click-through rate). UBS Group AG's research report highlights that the fusion of AI and advertising brings both opportunities and challenges: companies that master cutting-edge AI technologies (such as Alphabet Inc. Class C and Meta) are likely to be the first to introduce new digital advertising products and attract more advertising budgets. However, they also need to address the potential reshaping of the industry competitive landscape and regulatory scrutiny. In the view of UBS Group AG, AI will become the next super growth engine for the digital advertising industry in the medium to long term, and the extent of investment in AI and the actual coverage and revenue growth of the "AI + advertising" model by major tech companies will be key factors determining their competitive advantage and market share. Especially for Alphabet Inc. Class C and Meta, how to balance AI product innovation with existing advertising services will directly affect their growth paths. The digital advertising business can be said to be the core revenue engine for Meta, with its 3 billion users serving as the cornerstone. Meta's AI advertising tools and Meta AI have helped drive revenue growth for its advertising business for multiple quarters. In the digital advertising delivery field that Meta relies on, the powerful open-source AI models launched by Meta with its 3 billion users, along with various generative AI software tools, help advertisers reach a larger range of potential user bases, providing Meta advertisers and users with a brand new AI-based advertising recommendation experience. This is also an important logic widely expected by Wall Street analysts to continue supporting Meta's stock price rise. Why are more and more businesses starting to massively use Meta's advertising tools? The main reason is that with the help of Meta AI (Siasun Robot & Automation's AI chat service), advertisers hope to use Meta AI to accurately reach a larger range of potential user bases (after all, Meta's software ecosystem has over 3 billion users). Research data shows that most advertisers plan to increase or maintain their advertising spending on Meta's digital advertising platform. Meta's exclusive AI ecosystem platform may help Meta achieve stronger performance than expected in the second half of the year, and is expected to continue on a positive growth trajectory in 2025 and beyond, even pushing the stock price of this giant towards the most optimistic Wall Street target price of $900. Wall Street investment institutions have recently praised Meta's large-scale AI model Llama open-source model, which is driving global developers to adopt higher-level AI technology, stating that this open-source model is beginning to establish an exclusive AI ecosystem for Meta. In the field of digital advertising, UBS Group AG's long-term preferred targets are Meta and The Trade Desk Looking ahead at the trend of AI applications, with the significant reduction in AI training costs and a sharp decrease in the Token costs of inference terminals, the future killer generative AI applications that cover various industries for B-side or C-side consumers are likely to emerge, and there is a high probability of a surge in the "AI intelligent body" that is likely to significantly increase human social productivity, which is why global funds have recently been flowing into software stocks such as Meta, Microsoft Corporation, and The Trade Desk. Meta Advantage+ and The Trade Desk Kokai are both integrated intelligent advertising platforms for advertisers based on Artificial Intelligence/Machine Learning: the former automatically completes audience targeting, budget allocation, and material optimization using AI, while the latter uses AI engine to assess millions of bids in real time and dynamically bid based on target ROI, predicting conversion values based on audience intent, adjusting each bid dynamically, and providing visualizations of ad effectiveness and actionable insights through the built-in AI panel "Programmatic Table". Kokai leverages AI large models to optimize, leading to lower eCPM and higher conversion rates for advertisers; TTD's official data shows that AI strategies on average can improve outcome efficiency by 15%-20%, especially in unified delivery across CTV, streaming audio, mobile apps, and web inventory, offering more transparent pricing and measurement capabilities. From the research report of UBS Group AG and the latest news in the tech industry, Meta and The Trade Desk both significantly improve the accuracy and efficiency of advertising using AI, confirming that the "AI + advertising" model has become the mainstream trend in the digital advertising industry. Large models and machine learning help platforms process massive signals in milliseconds for better real-time bidding and audience matching, automating the reduction of operational thresholds for advertisers, and driving budgets towards digitally measurable channels with significant effects. UBS Group AG's analyst team has given Meta a "buy" rating with a target price of $812 within 12 months, believing that its high penetration rate of AI in social platforms and significant user base advantage with global leading social media platforms such as Facebook, Instagram, WhatsApp, the monetization basis of the "AI + advertising" model is very solid; at the same time, Meta actively expands in product innovation and diversified monetization, such as commercializing short videos Reels, aggressively investing in the metaverse and AR potential for advertising. UBS Group AG expects Meta's ad revenue growth rate to continue to increase as macro conditions improve and advertising demand recovers, the company is able to achieve profit growth while controlling costs, making it an attractive risk-return investment in the medium to long term. As of the close of the U.S. stock market on Wednesday, Meta's stock price was around $700. According to a recent report released by Bloomberg industry research analysts, by 2032, the total revenue of the generative AI market is expected to increase from around $40 billion in 2022 to $13 trillion, making the market grow 32 times in a decade at a high compound growth rate of up to 43%. The Bloomberg industry research team states that market expansion will focus first on the strong demand for infrastructure required for training AI systems, followed by the strong demand for subsequent terminal devices using AI models, as well as other services types like advertising delivery and software applications. In the application ecosystem oriented towards B\C users, which includes advertising delivery and software applications, it is undoubtedly the field in which Meta is most proficient. UBS Group AG also gives a "buy" rating for The Trade Desk with a target price of $105 within 12 months, up from $80. As a leader in the open Internet advertising platform, The Trade Desk is positioned for long-term growth in the programmatic advertising and CTV track, leveraging its excellent technology platform and extensive partner ecosystem to continue to capture budget share from the traditional linear advertising market. UBS Group AG particularly favors The Trade Desk's layout in connected TV advertising - as viewers shift more towards streaming media, advertisers are adjusting their placement strategies, and The Trade Desk is well positioned through partnerships with major CTV content providers. As of the close of the U.S. stock market on Wednesday, The Trade Desk's stock price was around $81. In addition, UBS Group AG emphasizes that The Trade Desk's data-driven capabilities and comprehensive targeting make it an important channel for major advertisers to deliver cross-platform advertising, and in the context of tightening privacy regulations, its role as a substitute for the Closed Garden is becoming increasingly important. UBS Group AG believes that The Trade Desk's excellent execution and innovation (such as the continued upgrade of the Kokai platform) will help the company maintain above-industry growth in the coming years, highlighting its long-term investment value. In comparison, UBS Group AG has a "neutral" rating for Alphabet Inc. Class C, the parent company of Alphabet. Alphabet Inc. Class C has the largest revenue scale and lucrative profit margin in the digital advertising field, but the uncertainty surrounding its growth prospects has led UBS Group AG to maintain caution: especially, its search engine business is facing dual challenges from regulation and the "search paradigm" shifts led by OpenAI, Anthropic, and xAI. The search industry competition triggered by AI may gradually intensify. While Alphabet Inc. Class C is actively transforming (such as developing new AI-driven search experiences, focusing on YouTube Shorts and cloud services), UBS Group AG tends to watch how these initiatives can offset potential risks of ad loss. In terms of investment allocation, UBS Group AG currently maintains a "neutral" rating for Alphabet and waits for more clear positive catalysts to consider a more proactive investment stance.