UBS’s latest research from its Evidence Lab indicates a positive outlook for the digital sector, particularly for major players such as Alphabet Inc’s Google and Meta Platforms Inc, the parent company of Instagram and Facebook.
The research forecasts a low double-digit growth rate for the digital sector in 2024, a significant improvement from the low single-digit growth rates observed previously in December. This optimistic trend is attributed to robust consumer demand and increased advertising spending across key sectors like pharmaceuticals and healthcare.
For the first quarter, UBS expects online advertising budget growth to slow slightly for Alphabet, with an estimated increase of 11.2%, compared to 13.4% in the previous quarter. Conversely, Meta is anticipated to experience a marginal uptick in growth to 12.9% from 12.8%. Looking at the entire year, Alphabet is projected to achieve a 10.2% growth rate in 2024, up from 9.2% in 2023, while Meta is forecasted to enjoy a 14.3% growth rate, compared to 10.3% in the previous year. 
Furthermore, UBS observes a deceleration in technical hiring at major tech firms during the first quarter of 2024, suggesting continued focus on operational expense management at Google and prudent investment strategies at Meta in line with their guidance.
Concerning Google’s outlook, UBS suggests that unless the company implements significant cost reductions or introduces new revenue streams to boost earnings per share to approximately $9.00 or higher, its earnings may stagnate. Currently, Google’s stock trades at around 21 times its projected 2025 earnings per share of $7.50. Investors will likely pay close attention to the company’s capital expenditure plans for insights into its strategic direction for 2024 and beyond.
In terms of Meta, the company continues to benefit from multiple growth drivers, including the expansion of its Reels feature, Advantage+ program, and Click to Message advertisements. Additionally, an anticipated increase in advertising spending from Chinese firms targeting international markets could provide a significant boost.
UBS projects Meta’s advertising revenue to surge by 23% to $34.6 billion in the first quarter of 2024, with total revenues potentially reaching $35.7 billion. These figures surpass investor expectations, with second-quarter revenues forecasted to approach $39 billion.
