When Google parent Alphabet Inc. and Facebook Inc. report their first-quarter earnings results this week and next, one essential fact will become even more apparent: Together, they’re running away with most of the growth in online advertising.

But the reason for their growing dominance of the $60 billion market isn’t only their huge audiences. It’s thanks just as much to their massive and growing investment in data centers, Big Data for ad targeting and analysis, and artificial intelligence.

“Scale fuels Google’s and Facebook’s ability to invest/innovate and dig even deeper competitive moats,” Brian Nowak, an analyst with Morgan Stanley Research, wrote in an Apr. 7 note to clients.

Google and Facebook are capturing nearly all the growth in online advertising.

And that advantage is rapidly accelerating. According to Nowak’s estimates, the two companies together are driving more than 85 percent of the industry’s growth (right). That’s thanks in large part to their combined ability to spend 10 times as much in operating expenses (below), including sales and research and development, as the next five biggest publicly held online ad players–IAC (owner of Match Group, HomeAdvisor and other brands), LinkedIn, Twitter, Yahoo and Yelp. Just last year, Google and Facebook were spending only four times as much as the others.

Then there’s capital spending. Google, led by Chief Executive Sundar Pichai (pictured) spent $3.6 billion on data centers and capital equipment last quarter, up 57 percent from a year ago. Driven by CEO Mark Zuckerberg, Facebook spent $692 million, up 34 percent. Yahoo’s fourth-quarter capital spending? $76 million. 

As Alphabet reports first-quarter earnings Thursday and Facebook reports on Apr. 27, analysts believe they will demonstrate how they’re expanding that moat. “These are the two heavyweights competing for most of the ad dollars,” said Will Margiloff, chief executive of the online marketing technology company IgnitionOne.

Alphabet’s results may be somewhat overshadowed by the news Wednesday that the European Union is charging Google with antitrust violations related to its mobile operating software Android. But Wall Street expects the company to post an operating profit of $4.4 billion, with earnings per share of $7.96, up 21 percent, according to FactSet’s survey of analysts’ estimates. Revenue is expected to rise 18 percent to $20.4 billion.

Ads, ads and more ads

The big drivers: search ads, naturally, as well as video ads on YouTube. By most accounts, both are doing well on mobile devices. Indeed, Steve Weinstein, Internet analyst at ITG Investment Research, thinks the lower prices for mobile search ads that has plagued Google the last couple of years have eased, partly because larger phones make searches easier. As a result, he sees Google’s growth coming in higher than it has been for several years.

Google’s and Facebook’s spending far outpaces its closest online ad rivals.

Facebook is poised to do even better, thanks to rocketing video ads and Instagram ads. “We expect them to put up the best growth of anyone in the industry this year and next,” said Weinstein. Analysts on average forecast revenue of $5.25 billion, up 48 percent, with more than 80 percent of ad revenue coming on mobile devices. Profit per share is predicted to be 62 cents a share, also up 48 percent.

Beyond revenue, investors will be weighing each company’s spending plans, which can be volatile. High levels of spending at both Google and Facebook have been a persistent concern for investors, even though all those data centers and all that R&D have allowed them to expand their offerings to both users and advertisers faster than smaller rivals from Yahoo to Twitter. Credit Suisse this week shaved its price target on Alphabet because of expected costs of building data centers for the Google Cloud Platform.

“They want to offer a lot of services that use a lot of data,” said Weinstein.

Because of the scale of Google’s and Facebook’s ad operations, they have often had to invest in creating fundamentally new technologies. “They have problems so large that they are constantly having to invent new ways to manage infrastructure, storage, etc.,” said Brian Gracely, an analyst at Wikibon (owned by the same company as SiliconANGLE). Both design their own servers. Facebook has also created a storage system called Haystack, and Google wrote and data center container software called Kubernetes, since offered as open source software.

That kind of work doesn’t come cheap. Investors will be looking to determine whether all that spending is paying off.

Photo by Robert Hof, images from Morgan Stanley