The expensive push by Meta Platforms to build AI models has garnered excitement for Meta stock on Wall Street. But its resolve could be tested as tariffs and other economic concerns weigh on the sector that powers the Facebook parent company's revenue: digital advertising.
Some market forecasters have cut their estimates for overall advertising spending in 2025 in response to new tariffs and fears of a recession.
"Advertisers tend to become more conservative during periods of economic crisis," Debra Aho Williamson, chief analyst of Sonata Insights, told Investor's Business Daily. "They look for opportunities to pull back on nonessential spending, and they're less willing to commit to experimental or unproven types of advertising. Basically, they go back to the ad formats and media partners they are confident will drive results."
Meta stock has been slumping since February as concerns about the economy grow. There are reasons, however, that Meta could better withstand an ad slowdown compared to its competitors, analysts say. But the company's ability to outperform what could be a shaky ad market will be closely watched in light of Meta's big spending plans on AI data centers and the metaverse.
That's partly why KeyBanc Capital Markets analyst Justin Patterson recently lowered his price targets for both Meta stock and its ad market rival Alphabet, Google's parent company.
"Any slowdown in top line is occurring against an expense base with a heavy fixed-cost component (AI data center and engineers)," Patterson wrote in a March 18 client note. "Since expense cuts already occurred in 2023 and the AI investment cycle is still strong, earnings power is likely more pressured throughout this cycle."
Tariffs Could Drive Advertising Slowdown
Brian Wieser, an industry analyst behind the consulting firm Madison and Wall, last week projected nonpolitical U.S. ad spending would grow 3.6% in 2025. That's down from his forecast at the start of the year for 4.5% growth.
The first three months of the year have brought "additional negative factors, including volatility around trade policies and a more extreme threat to supply chains and corporate decision-making than we previously expected," Wieser said in a report.
One of the top concerns is President Donald Trump's pledge to enforce stiffer tariffs on many imports, increasing costs for ad-buying industries ranging from e-commerce to auto manufacturers. A late February survey by the Interactive Advertising Bureau found that 94% of U.S. advertising decision-makers are concerned about the impact of tariffs on ad spending.
EMarketer earlier this month projected that the U.S. digital advertising market would grow 11.8% this year, slowing from 15.6% growth in 2024. Media intelligence firm Magna, meanwhile, lowered it advertising growth forecasts Wednesday, citing "uncertain times."
What Is At Risk From Digital Ad Slowdown
That could be a concerning sign for Meta. About 98% of the company's revenue comes from advertising that targets the more than 3 billion users of the company's "Family of Apps," which includes Facebook, Instagram, Messenger, WhatsApp and Threads.
Meta's revenue growth was already forecast to slow this year against comparisons to its strong 2024. Analysts polled by FactSet are projecting sales growth of 14.5% in 2025, compared to Meta's 23.4% sales jump last year.
Its huge reach could help Meta withstand an ad slowdown, in the eyes of many analysts. It is one of digital advertising's big three alongside Google parent Alphabet and Amazon.
"When economic situations force advertisers to make cuts, smaller platforms tend to feel the pinch more strongly because advertisers tend to consolidate their spending," Williamson told IBD. "At this point, many advertisers are firmly embedded with Meta. It's a hard habit to give up."
Why This Is Different For Meta Than 2022
But Meta stock was hit hard the last time the ad market slumped. The Facebook parent company's revenue fell by 1% in 2022, its first sales decline as a public company. Meta stock sank that year as the sales decline heightened concerns about increased spending on Chief Executive Mark Zuckerberg's metaverse vision.
Along with a broader market slowdown in 2022, Meta's ad sales took a hit that year from privacy changes for iPhone users by Apple that made it harder to target ads.
"This had a particularly hard effect on Meta — Apple's privacy changes forced it to rework a lot of its ad targeting and data infrastructure," Williamson said.
Meta turned to a suite of AI tools designed to help ad buyers rapidly create and track campaigns. Sales bounced back to 13% growth in 2023.
Now, some analysts say it is Meta's ability to integrate AI into its offerings that will allow it to perform better than competitors in a rocky ad market.
"We prefer Meta due to its comparatively stronger growth drivers, potential upside from new AI/ML (machine learning) services, and a lower regulatory and AI disruption overhang," BofA Securities analyst Justin Post wrote in a client note on March 24.
Meta Stock Leads Mag 7
Investors appear to be taking a cautious approach. Meta stock posted gains for five consecutive trading days through March 25, managing to retake its 21-day moving average. But the stock slumped back below the short-term support level with losses to close out the week. That was after Trump announced his plan for 25% tariffs on imported vehicles.
Year to date, Meta stock is down 1.5% through Friday's close. That's a major step back from the pace of Meta's 194% surge in 2023 and 65% gain last year.
Monness Crespi Hardt analyst Brian White wrote Thursday that despite Meta's "strong traction" with its AI offerings, the company faces regulatory scrutiny and a "fragile" macroeconomic environment. He reiterated a buy call but offered cautious commentary.
"As demonstrated in years past, digital ad spending is highly sensitive to the vicissitudes of the economy," White wrote. "Essentially, history has proven there is no place for ad-driven business models to hide during a downturn."
