Investments in artificial intelligence will be responsible for a significant increase in spending at Facebook parent Meta in the coming year, but stronger-than-expected revenue from its advertising business was enough to reassure investors that the company is on the right track.
Meta Platforms Inc. reported stronger-than-expected second-quarter results on Wednesday, sending shares sharply higher in after-hours trading. While it didn’t say how much it expects to spend on AI next year, the company made it clear it would be significant.
The prospect of rising expenses can be common scared investorsbut analysts said Meta’s latest results show it can afford it, at least for now.
“The market’s positive reaction to Meta’s earnings report is indicative of AI stock. If a company can demonstrate strong results in its core activities, its investments in AI will be viewed more positively. If the core business shows any sign of weakness – as we saw last week with Alphabet’s YouTube – then the stock may look riskier,” said Debra Aho Williamson founder and chief analyst at Sonata Insights.
She added that Meta stands out from other tech companies with AI ambitions because it is already bringing in a “huge amount” of advertising revenue – rather than trying to build a new business from scratch.
“And unlike Google, which is struggling to implement changes that will impact its core advertising business, most of Meta’s AI investments are aimed at making ads work better on its properties, or building new features that can ultimately generate revenue,” said Williamson. .
The Menlo Park, California-based company earned $13.47 billion, or $5.16 per share, in the April-June period. That’s up 73% from $7.8 billion, or $2.98 per share, in the same period a year earlier.
Revenue rose 22% from $32 billion to $39.07 billion.
Analysts on average expected earnings of $4.72 per share on revenue of $38.26 billion, according to a FactSet poll.
“We had a strong quarter and Meta AI is on track to be the most used AI assistant in the world by the end of the year,” CEO Mark Zuckerberg said in a statement. During a conference call with analysts, Zuckerberg said Meta is in a “lucky position” where strong results give it an opportunity to invest in the future.
The number of daily active users of Meta’s apps – Facebook, Instagram, WhatsApp and Messenger – reached 3.27 billion in June, up 7% from a year earlier. The company no longer discloses user figures for Facebook as it did in the past. The company recently announced that WhatsApp has reached more than 100 million monthly users in the US, and Zuckerberg said Threads, Meta’s X rival, is on the cusp of reaching more than 200 million monthly users.
Meta said it expects third-quarter revenue to be between $38.5 billion and $41 billion. Analysts expect $39.1 billion.
The company hasn’t yet provided guidance for 2025 — it said it will do so during its fourth-quarter earnings call — but expects infrastructure costs to be a “key driver of cost growth” in the coming year. Like other major technology companies, Meta is investing heavily in building its artificial intelligence capabilities, including in data centers, and expects “significant capital expenditure growth through 2025 as we invest to support our research and product development in the field of artificial intelligence.”
Meta is well-positioned to grow much faster than the competition in the future, both in AI and advertising, says Thomas Monteiro, senior analyst at Investing.com.
“That’s because Zuckerberg’s company continues to show signs of being able to continue growing at over 20% per quarter in a much more efficient manner than other major tech companies, such as Alphabet and Microsoft, for example; which are not only struggling to maintain double-digit revenue growth but are also increasingly taking a hit on the margins side,” he added.
Monteiro added that Meta’s strategy of focusing growth on younger users outside the US appears to be paying off, although the numbers “would have been even better” had the Reality Labs segment not seen a decline in revenue.
Meta’s stock rose $23.67, or 5%, to 498.50 in after-hours trading.
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