AI could reshape ad budgets and marketing strategies

Advertising companies are poised to benefit from the widespread adoption of artificial intelligence. Macquarie Senior Media Tech Analyst Tim Nollen joins Yahoo Finance Live to discuss how AI can help advertising companies optimize their budgets.

Nollen acknowledges that AI "has been a factor for many years already" in the advertising and media landscape. However, he also highlights the "broader implications" of language models like ChatGPT, which could fundamentally change how consumers perform searches. This shift could substantially impact search market revenue, which is already a $200 billion industry, Nollen explains.

He notes AI could open up opportunities for advertisers who allocate ad spending to search engines, allowing them to diversify their budgets and explore alternative avenues. Nollen points to companies like AppLovin (APP) as potential beneficiaries: the company could leverage its data "to make their automated ad buying platforms more effective," potentially delivering higher "returns on spending" for advertisers.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Angel Smith

Video Transcript

JOSH LIPTON: A key theme for markets. It's all about AI. We know that.

And it's not just about chip makers and internet names. Macquarie is out with a new note highlighting opportunities amid the hype across a spectrum of software and hardware stocks. And joining us now is Tim Nollen, Macquarie Senior Media Tech Analyst. Here to take a closer look at the advertising space.

Tim, it is good to have you on the show. Maybe just start, Tim, big picture. Because you point out how advertising and marketing companies, Tim.

They're already integrating AI and benefiting. How so, Tim? Walk us through some of the examples you're seeing in those two industries?

TIM NOLLEN: Sure. Thanks. AI is a huge theme as you mentioned across so many industries. In the media and advertising space, it's been a factor for many years already if you think about media companies that are using AI as part of their image, or video generation, ad agencies that are using AI to help create multiple versions of ad creative content.

For example, where you can just sort of throw in a local reference for a product for example. And, you know, I think of much broader implications as well. The search market could change because of AI.

AI brings ChatGPT brings much broader implications to how consumers can perform searches. Searches a $200 billion industry. It's a quarter of all ad spending. We wonder how that might change as consumers interact with AI applications more in the future.

JULIE HYMAN: Hey, Tim. It's Julie here. Does this mean then that there will be a big drop in ad spending if-- I mean, frankly, if the searches get better, or if they get more targeted, if you don't have to go to as many places.

TIM NOLLEN: No, that's not how I think of it. The search market itself, what I mean is as ChatGPT and other functions come to search itself, the way that consumers perform searches may begin to change. So there are search like applications where you can just speak into your phone about any topic of interest.

You might want to book a hotel room or you might wonder what the weather is in Beijing. And you can just get a reply. That may or may not be generated delivering advertising alongside with it.

But I'm thinking more broadly here as well. Advertisers who have been putting about a quarter of their dollars of their ad spending globally towards search have other ways that they can apply their spending now. So we cover a couple of companies in the ad tech space.

For example, AppLovin and the Trade Desk, which are very, very involved in ad transactions, automated ad buying. For the Trade Desk across multiple industries, multiple media, for AppLovin more specifically focused on mobile gaming.

And both of these companies, they see huge volumes of transactional data. They can feed that data into their AI engines. And they can then use that to make their automated ad buying platforms more effective.

The more effective this proves to be and AI generates better responses on the ad purchases that they make, the more advertisers may think about, well, should I be advertising as much as I am on search when search is changing? I can put more money to work in other areas such as these other demand side driven platforms.

So it's not about more or less necessarily. It could be more because advertisers are looking for returns on spending. The better returns, they get, the more they're willing to spend.

And with these new types of tools there are just many, many more ways that advertisers can approach how they market to consumers.