Digital Ads 2Q26: AI Identity crisis

Research evidence excerpt

Digital Ads 2Q26: AI Identity crisis

cially with fears

around a rising stock price into an equity issuance to fund these initiatives a la Google last quarter. Ultimately, Meta only needs

to get one idea to hit product-market fit to shift investor sentiment. The valuation remains attractive relative to mega-cap peers,

supported by multiple AI-related optionality vectors. We bring up our revenue and CapEx estimates. We remain Outperform

on Meta, with a PT of $850/Share. We value Meta using a 50/50 combination of 2027e EV/Sales multiple of 7x, and a

DCF using an WACC of 10% and a terminal growth of 3.5%. We consider Meta primarily a digital advertising business and

benchmark valuation to comparable peers in this industry set.

GOOGL: Harder to fight the narrative. The equity issuance appeared to mark a top of sorts into a generational run by Google

and its stock price. Google has done a phenomenal job rebuilding the foundation of search and showing their larger, slower

peers what it means to be an AI cloud winner. The company remains a compelling investment given its vertical integration across

the AI stack, a strong FCF generating machine in advertising, and exciting greenshoots ramping across Waymo and TPU-rack

sales off GCP. Yet for all the positive trends, we remain squarely in a trading market with narratives false or otherwise emerge

from nothing and worry questions around search’s moat return with decelerating search revenue growth rates, model progress

questions given the sudden rise in performance from domestic (Meta, etc.) and International frontier models, economics of

TPUs sales potentially being margin dilutive with TAM questions, all while incumbent hyperscalers potentially deliver visible

acceleration as enterprise demand shows up.