Over the last five years, Meta Platforms (META +0.16%) stock has been one of the best names to own. Its shares have generated a total return of 192%, far exceeding the S&P 500' index's total return of 102% over the same period. Yet, I think Meta can match -- or even exceed -- its past performance thanks to the rise of AI-powered advertising.
First, some background. Meta generates an incredible amount of revenue, nearly $175 billion annually, or roughly $500 million per day. Almost all -- around 97% -- comes from selling ad space across its platforms like Facebook and Instagram.
NASDAQ: META
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Currently, most of those ads are designed and produced by advertising agencies. These companies work with brands to develop and track ad campaigns. Think Mad Men but updated for the 21st century.
That's where AI comes in. Meta has announced plans to begin rolling out AI-powered ads on its platform to allow brands to fully automate their advertising on Meta's systems by 2026.
This is a big deal, because according to Statista, ad agencies in the U.S. alone generated nearly $64 billion in 2022. If Meta's AI-produced ads are a hit, the company could begin to take some share of this lucrative market away from traditional ad agencies.
Image source: Getty Images.
What's more, it's not a far-fetched idea. Many brands may be intrigued by what Meta's powerful AI could produce. In particular, Meta could use proprietary data to personalize ads, placing a custom-built ad into a user's feed.
For example, Meta's AI could potentially use its powers of deduction to highlight the features most important to the prospective customer (safety, cost, reliability, etc.). In other words, these ads might be more effective than what ad agencies could ever hope to produce for a mass audience.
In turn, Meta might land a new source of revenue, leading to further growth and a higher stock price. So, while there is still plenty of work to be done, AI-powered ads are one reason why investors should consider buying Meta stock right now.
