From Search to Suggestion: How AI is Reshaping the Digital Ad Economy

Globe and Mail

3 days ago

What happens when the search bar disappears?
That question isn't as far off as it sounds. Tools like ChatGPT, Perplexity, and Google's Gemini are already changing how people look for information online. Instead of typing keywords and clicking through results, users now ask questions and get direct answers, often with product recommendations or summaries built in. No ads, no links, and no search results page.
For investors, this marks a major turning point. Digital advertising has long relied on keyword targeting and clicks. But as AI chat becomes more mainstream, that model is getting harder to rely on. Visibility now depends on whether your brand shows up in the answer at all.
Companies that adapt early could gain an edge. Those who don't may be left behind.
Cracks in the Search Engine Empire
Online visibility used to follow a simple formula: buy some keywords, rank well in search results, and watch the traffic come in. Google and Baidu built their empires on this, while businesses poured money into SEO and SEM to stay competitive.
But that model is starting to show its age. In Q1 2025, Alphabet Inc's (GOOG) core ad revenue grew by 8.5%, a slowdown from 10.6% in Q4 2024. Younger users are also skipping search altogether: nearly 40% of Gen Z now prefer TikTok or Instagram when searching for information online.
Investors are already seeing the impact. Alphabet's P/E ratio has fallen from 25.57 in Q4 2024 to 19.52 as of May 2025. Baidu, Inc's (BIDU) revenue dropped 1% in 2024, ending the year at $18.24 billion.
Search platforms may still dominate today, but staying relevant will mean evolving with how users discover content.
The Rise of AI-Powered Discovery
The way people find information is shifting fast. Instead of scrolling through search results, users are turning to AI tools like ChatGPT, Claude, and Gemini for direct answers. These systems don't just summarize, but they suggest products, services, and decisions in real time.
Ask ChatGPT where to invest $500 or what the best CRM tool is, and it won't give you a list of links. It will offer a curated response based on how it processes data. Claude and Gemini do the same, bypassing traditional web rankings.
That's a big change, and showing up on page one of Google isn't the only goal anymore. The real question is whether your brand appears in the AI's response. If your business depends on online visibility, it's worth understanding how to rank your website on ChatGPT, a new frontier in digital strategy. Staying discoverable in AI-generated results could soon be just as important as traditional SEO.
For businesses and investors, this presents both a challenge and a window of opportunity.
Ad-Tech Companies Getting Ahead of the AI Curve
Some ad-tech companies aren't waiting, they're already shifting strategies to meet this moment.
Why These Stocks Could Lead the Shift
The Trade Desk (TTD) is moving early with Unified ID 2.0, a system built to replace third-party cookies while still allowing targeted ads. It's privacy-focused and designed for today's evolving data rules. As of late May 2025, the stock trades at a forward P/E of 43.48, far below its five-year average trailing P/E ratio of 232.63, suggesting a more reasonable valuation.
Meta is using its in-house AI tools, including LLaMA 4, to sharpen ad targeting. It posted $42.31 billion in Q1 2025 revenue, beating analyst expectations. However, Reality Labs continues to weigh on results, with $17.7 billion in losses last year.
Perion Network (PERI) is branching out into retail media and digital out-of-home ads, key after Microsoft changed its Bing deal, which affected Perion's search business. As of May 2025, its EV/EBITDA ratio is around 2.4, reflecting cautious investor sentiment for future growth.
These companies are showing what adaptation looks like in real time.
Who's At Risk?
Some of the biggest names in tech still lean heavily on traditional ad models, and that could be a problem as user behavior starts to change.
Alphabet continues to lead in digital advertising, pulling in $66.9 billio n in ad revenue in Q1 2025. But growth is slowing, and the company's model still depends largely on keyword-based ads, exactly the kind that become less useful when users start getting answers directly from AI. As people spend less time clicking through search results, Google's ad reach could face pressure.
Baidu is in a similar spot in China. Its AI development is strong, but the business side hasn't caught up. In early 2025, overall revenue was up just 3%, and online ad sales actually dropped 6%. So far, Baidu hasn't figured out how to turn its AI tech into meaningful ad dollars.
Amazon (AMZN) is a bit of a hybrid. Ad sales jumped 18% in Q1, driven by its retail platform. But while Amazon is growing fast in e-commerce advertising, it doesn't yet play a central role in AI-generated recommendations, which could become a bigger deal over time.
As more users turn to AI tools for answers, these companies could see ad prices (like CPMs) dip unless they adapt their strategies for a post-search world.
What Investors Should Watch Next
The shift toward AI-powered discovery is still in its early stages, but the signs are already there and investors would be smart to keep an eye on them.
Start with the basics: if cost-per-click (CPC) and cost-per-thousand impressions (CPM) start falling on traditional platforms like Google or Bing, it could be a red flag that attention is drifting elsewhere. Simultaneously, look for growth in AI-generated product placements where tools like ChatGPT or Gemini are surfacing brand suggestions inside their responses.
Another key signal? Where the ad dollars are going. If more brands begin shifting their budgets toward 'in-AI' strategies, like optimizing for visibility inside generative answers instead of search rankings, it could mark the beginning of a much larger trend.
The big picture here isn't just about better targeting or smarter data. The real prize is visibility, being the first answer a user sees when they ask a question. That's where the next digital advertising gold rush could happen.
Don't Underestimate the Discovery Shift
AI-powered discovery is already changing how people interact with the web. Instead of searching and clicking, users are now asking and receiving, fast, direct, and often without leaving the chat.
For ad-tech companies, that's a big change, and one that creates both risk and opportunity. The players that adapt will find new ways to reach customers and unlock revenue. Those that don't may struggle to stay relevant.
For investors, this isn't just about who's building the best AI models. It's about who shows up in the answer box. Because in this new landscape, the first response is the new front page of the internet.