Big Tech’s AI bill rises up to 100%, but ad revenue keeps climbing

Artificial intelligence is no longer just driving spending at global technology companies. It is starting to change how digital platforms sell advertisements, build shopping baskets, and deliver orders, a shift Elara Capital says could support Indian internet firms such as Eternal, Nykaa and Affle.

Karan Taurani, executive vice president at Elara Capital, said global earnings showed that artificial intelligence was moving from infrastructure investment into consumer and advertiser facing applications. The key implication for Indian internet companies is that value commerce, premium shopping and convenience led quick commerce can grow alongside each other rather than compete for the same customer.

“Global trends validate that value e-commerce and premium and convenience led quick commerce can coexist, serving distinct cohorts,” Taurani said. Elara retained Eternal, Nykaa and Affle as its preferred India internet stocks, while describing Swiggy as an execution story and flagging structural pressure on Avenue Supermarts, which operates DMart, as rapid delivery expands.

Advertising is becoming more valuable per impression

The Elara report found that Big Tech is spending heavily to build AI capacity, but the early gains are most visible in advertising. Amazon, Meta and Alphabet increased capital expenditure by 68%, 83% and 100% year on year, respectively, and their guidance has risen about 8% to 10% from the previous quarter.

Their investment levels are now roughly two to three times those of a year earlier.

That spending has squeezed free cash flow. Amazon’s trailing 12-month free cash flow swung to a negative $7.6 billion despite 20% revenue growth, while Meta’s quarterly free cash flow fell 91% year on year to $784 million even as revenue rose about 28%.

Yet the ad returns are already evident. Meta’s advertising revenue climbed 27%, helped by a 14% increase in ad impressions and a 12% rise in price per ad. Alphabet said AI campaigns generated about 15% more conversions at similar returns, while Amazon’s advertising revenue rose 26% to $19.8 billion. Amazon’s Ads Agent lowered cost per acquisition by 6% and cost per install by 8%.

“Platforms are therefore monetising impressions better through targeting and first party data rather than merely expanding inventory,” Taurani said. That trend is relevant for Affle, which Elara expects to benefit from stronger AI driven conversion.

The gains, however, are uneven among independent advertising technology firms. PubMatic’s revenue growth rebounded to 11% in the June quarter from a 4% decline in the previous quarter, and its adjusted EBITDA margin rose to 25% from 20%. The Trade Desk’s revenue growth slowed to 3% from 19%, while its margin slipped to 34% from 39%.

Commerce platforms are also finding ways to earn more from existing demand. Walmart’s global advertising revenue rose 38%, Amazon’s third-party seller services revenue increased 16%, and Instacart’s advertising revenue grew 16%. DoorDash’s orders rose 27% to 970 million and its marketplace gross order value climbed 36% to $33.1 billion, aided by a 7% increase in average order value.

China offers a parallel for India’s quick commerce market. Alibaba’s China quick commerce revenue jumped 45% and accounted for 20% of group revenue, even as its core China ecommerce revenue fell 8%. Meituan’s core local commerce revenue rose 10.1%, with on-demand delivery unit economics turning positive across food and non-food categories as subsidy intensity eased.

For Eternal, Elara expects a similar easing of quick commerce competition to support margins. Nykaa, it said, stands to gain from premiumisation, while Swiggy’s prospects will depend on its ability to execute profitably. “Faster delivery represents a meaningful share of platform sales, increasingly led by non-food categories,” Taurani said.