The latest AI move from Meta could make its biggest business even stronger

Meta Platforms' influence on digital advertising is growing stronger. Meta is making changes to its recommendation engine. Starting December 16, users' conversations with the company's generative AI tools, such as chatbots on Facebook, Instagram, WhatsApp and Messenger, as well as the standalone Meta AI app and website, will be used to make ads and content more personalized. While users can't opt out, Meta said the "update will not be available to those who do not interact with AI on their platforms." The company also said that AI conversations related to health, politics and religion will be excluded. DA Davidson technology analyst Gil Luria described the update as follows: "The next leg of Meta continues to be the biggest share winner in advertising since 2007, when the company launched its full advertising platform." By feeding information from Meta AI, which answers questions and generates text and images, into its recommendation systems, the company aims to better understand what the more than one billion people who use the chatbot every month care about, beyond their likes, follows, posts and replies. The social media giant hopes this sharper use of AI will strengthen the powerful advertising engine that has already made the company one of the most dominant forces in digital advertising. Data from eMarketer, which tracks the online advertising business, puts Meta in second place and predicts Meta will account for about 21% of U.S. digital ad spending in 2026. Alphabet's Google is in first place with almost 24%, while Amazon is in third place, rising steadily with more than 17%. "Now the ability to add whatever you want [Meta] Learning about their consumers from chat will make their ads even better, Luria told CNBC. “There are many things we ask a chatbot beyond the social media feed.” He added: “This gives Meta incredibly valuable insight into refining and fueling the wheel of delivering better, more relevant content and then delivering better, more relevant ads.” Meta's expansion into data collection directly impacts the company's performance, Luria said. Strengths: Keeping consumers interested and delivering the most relevant ads. "The more Meta knows about its consumers, the better the ads will be targeted. If ads are very well targeted, advertiser returns continue to grow, according to Luria, who has a buy rating on the stock, with a price target of $825, implying a 15% upside from Wednesday's close. Heavy AI for Meta, which CEO Mark Zuckerberg aims to ramp up with an AI hiring blitz this summer pressure has long fueled the company's advertising dominance. Even before last week's update, Meta used artificial intelligence to decide what content users see and what ads to serve based on their interests and behavior. Meta also uses artificial intelligence to help companies create and target their ads. Luria said Meta is spending billions of dollars on developing AI by embedding it more deeply into its core platforms. He explained that his investment proves how it can increase the precision and profitability of its advertising business, which also funds its efforts into virtual reality glasses and smart glasses. These startups are in Meta's money-losing Reality Labs division. “Meta isn't investing in AI infrastructure just to deliver better ads,” Luria said. OpenAI's ChatGPT, Google's Gemini, and “They want to have the best model,” referring to competing AI models such as Perplexity’s Claude. “But in the meantime they will sell more ads to pay for it, which helps pay for it Of course, investors have expressed concerns about the high cost of Meta's AI build, including spending on data centers and custom chips, and whether those investments will generate sufficient returns. The debate comes as some investors worry about a potential bubble around AI trading and raise questions about how much growth is currently priced into AI-focused stocks. Since posting a record close of $790 on August 12, the stock has cooled. Shares are currently trading at about $716 each; That's a 22% increase year-over-year, versus the S&P 500's 14.5% gain in 2025. META YTD Mountain Meta Platforms YTD Jim Cramer wrote in his latest column on Sunday: "We are living in the fourth industrial revolution. It is based on artificial intelligence that will disrupt entire verticals." For Meta, this means using its massive cash flow and AI expertise to maintain its leadership in digital advertising. Club continues to maintain our 2-grade price target on Meta stock, meaning we'll wait for a pullback before buying. (Jim Cramer's Charitable Trust is long META, AMZN, MSFT. See here for a full list of stocks.) If you subscribe 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 trading alert before buying or selling a stock in his charitable foundation's portfolio. If Jim talked about a stock on CNBC TV, he waits 72 hours after issuing the trading alert before executing the trade. THE ABOVE INVESTMENT CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY DISCLAIMER. NO CIVIL OBLIGATIONS OR DUTIES EXIST OR SHALL BE RESULTING FROM YOUR RECEIVING ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULT OR PROFIT GUARANTEE IS MADE.