How the ripple effect of inflation, tariff concern could impact 2 big tech stocks​on February 12, 2025 at 6:15 pm

Inflation-wary consumers are still worried about rising prices — for good reason.Inflation-wary consumers are still worried about rising prices — for good reason.   Inflation-wary consumers are still worried about rising prices — for good reason. And, the ripple effect could mean Corporate America spending less money on digital advertising this year. Among our portfolio companies, online ads are the bread and butter of Meta Platforms and Alphabet — both of which could face some headwinds. Digital advertising in the United States, the biggest market for Meta and Alphabet, is expected to increase by 9.1% in 2025, down from a 13.8% expansion in 2024, according to S & P Global. That’s directionally in line with TD Cowen’s estimate for worldwide growth of 11.5%, a decline from last year’s 14.5% advance. Many companies have shrunk their ad budgets out of caution, according to TD Cowen, citing economic and political risks, which in this case go hand in hand. On Wednesday morning, the government’s January read on retail inflation came in hotter than expected . The consumer price index followed last week’s University of Michigan consumer sentiment survey , which showed worries in February that inflation a year out would be the highest since late 2023. Those surveyed by the University of Michigan were concerned about President Donald Trump’s tariffs. TD Cowen analysts expressed similar views because tariffs could result in companies passing along their cost increases to consumers. If that happens, people might start buying less, which would shrink demand for companies’ goods and services and their need to buy ads from the likes of Meta and Alphabet. However, analysts think that both Meta and Alphabet, which capture more than 60% of spending on digital advertising worldwide, are positioned to manage those risks. At Meta, it said its focus on personalizing ad placements and increasing adoption of its artificial intelligence ad tools should continue to drive growth. It also sees opportunities to gradually introduce ads on Threads, the company’s answer to Twitter, now-Elon Musk-owned X, and WhatsApp, which have yet to be monetized. As for Alphabet, it said it has more AI-powered innovations planned for search this year that could increase engagement and demand for ads. To be sure, any slowdown in digital ad spend could impact Meta and Alphabet. About 97% of Meta’s fourth-quarter revenue of roughly $48.36 billion came from digital advertising on its social media platforms Facebook and Instagram. Roughly 75% of Google parent Alphabet’s Q4 revenue of $96.47 billion came from ads, mostly from Google Search and YouTube. Alphabet has the added challenge of how to monetize the AI results, which are displayed alongside regular search results. AI answers to user questions are cannibalizing traditional search results because they are summaries that don’t require further clicks. Tariff risk The part of the president’s trade policies that has the potential for the most immediate impact on the digital ad market — and, in turn, Meta and Alphabet — is Trump’s 10% tariff on Chinese imports, which went into effect on Feb. 4. In response, China launched a series of retaliatory tariffs on U.S. imports. This matters because both Meta and Alphabet have exposure to China-based advertisers. In 2024, China advertisers accounted for 11% of Meta’s total revenue, coming mostly from Chinese e-commerce players Temu and Shein. For Alphabet, an estimated 7% of Google Search revenue came from Chinese advertisers. While Meta and Alphabet have a diverse set of customers, a decline in cross-border e-commerce marketing spending could weigh on their growth. We must remember, though, that Trump’s tariff policies remain fluid — and, as of now, there is little indication that a trade war could put significant financial pressure on these companies. Neither mentioned tariff risk in their most recent earnings reports or management calls with analysts and investors. Ad survey Away from tariffs and macroeconomic uncertainty, Meta’s Reels is solidifying itself as the top choice for short-form advertising, outpacing both YouTube Shorts and TikTok. According to TD Cowen’s survey, 56% of ad buyers said they prefer advertising on Reels in 2025, an uptick from 41% last year. In comparison, 24% favored YouTube Shorts while just 20% chose TikTok. The analysts estimate that Reels revenue will surge 38% year over year to nearly $28 billion in 2025 and could reach $60 billion by 2029, growing at a 24% compound annual rate between 2024 through 2029. Beyond short-form video, Cowen noted Meta’s AI-driven ad tools are another major growth driver. The company has expanded its generative AI ad suite to include automated text and image creation, ad optimization through its Advantage+ Creative feature and an improved business messaging offering. These tools are already seeing strong adoption, TD Cowen said. As for Alphabet, it has its generative AI-powered tools in Google’s Gemini AI model that lets advertisers create campaigns easily, making it preferred online real estate for ad buyers. Out of the 54 senior ad buyers surveyed, 50% said Google Search continues to offer the highest return on investment and best measurement tools, ranking above other digital advertising platforms, TD Cowen wrote. Anat Ashkenazi, Alphabet’s chief financial officer, said in the company’s post-earnings conference call this month that all these AI features will allow the company to do more with lower headcount and expenses. Ashkenazi said one of her priorities is to look for “further efficiencies” so the company can invest in new areas, which should help it maintain its margins and earnings growth. It’s worth noting that on Wednesday morning, we trimmed our Club position in Meta because (1) it was getting too big in comparison to the rest of the portfolio and (2) it was on a 17-session, 17% winning streak. We still like Meta long-term for all the reasons outlined above. We booked a big gain of more than 240% on shares purchased in April 2022. (Jim Cramer’s Charitable Trust is long META, GOOGL. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. 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