Investments in artificial intelligence will be a big increase in expenses for Meta, the parent company of Facebook, next year, but stronger-than-expected revenue from its advertising business was enough to reassure investors that its business is on the right track.
Meta Platforms Inc. reported better-than-expected second-quarter results on Wednesday, sending its shares sharply higher in after-hours trading. While the company didn’t say how much it expects to spend on artificial intelligence next year, it made clear it will be substantial.
The potential for increased expenses can often be scary investorsBut analysts said Meta’s latest results show it can afford the costs, at least for now.
“The positive market response to Meta’s earnings report is a bellwether for AI stocks,” said Deborah Aho Williamson, founder and chief analyst at Sonata Insights. “If the company can show strong results from its core business, its AI investments will be viewed more favorably. If the core business shows any signs of weakness — as we saw last week with Alphabet Inc’s YouTube — the stock could look riskier.”
Meta stands out from other tech companies with AI ambitions because it already generates a “huge amount” of advertising revenue — rather than trying to build a new business from scratch, she added.
“Unlike Google, which has struggled to make changes that would impact its core advertising business, most of Meta’s AI investments are aimed at either making advertising on its properties work better or building new features that could eventually become revenue drivers,” Williamson said.
The Menlo Park, California-based company reported earnings of $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% to $39.07 billion, compared to $32 billion.
Analysts, on average, were expecting earnings of $4.72 a share on revenue of $38.26 billion, according to a FactSet survey.
“We had a strong quarter, and Meta AI is set to become the world’s most widely used smart assistant 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 “fortunate position” where strong results give it the opportunity to invest in the future.
Daily active users for the Meta family of apps — Facebook, Instagram, WhatsApp, and Messenger — reached 3.27 billion in June, up 7% from a year earlier. The company no longer breaks out user numbers for Facebook as it has in the past. The company recently revealed that WhatsApp has reached more than 100 million monthly users in the US, and Zuckerberg said that Threads, a Meta X competitor, is on track to reach more than 200 million monthly users.
Meta said it expects third-quarter revenue to be between $38.5 billion and $41 billion. Analysts had expected $39.1 billion.
The company hasn’t provided guidance for 2025 yet — it said it would do so during its fourth-quarter earnings call — but it expects infrastructure costs to be a “significant driver of expense growth” next year. Like other big tech companies, Meta is investing heavily in building out its AI capabilities, including in data centers, and it expects “significant capital expenditure growth in 2025 as we invest to support our AI research and product development efforts.”
Meta is well positioned to grow “much faster than the competition in both the AI and advertising spaces going forward,” said Tomás Monteiro, a senior analyst at Investing.com.
“That’s because Zuckerberg’s company continues to show signs of being able to continue to grow at double-digit quarterly rates in a much more efficient way than other big tech companies, like Alphabet and Microsoft, for example, which are not only struggling to maintain double-digit revenue growth, but are also taking a progressively bigger hit on the margin side,” he added.
Meta’s strategy of focusing on younger user growth outside the U.S. appears to be paying off, Monteiro added, though the numbers “would have been better” had its reality labs business not led to revenue declines.
Meta shares rose $23.67, or 5%, to $498.50 in after-hours trading.
CEO Daily provides essential context to the news leaders need to know from across the business world. Every weekday morning, more than 125,000 readers trust CEO Daily for insights on and from top executives. Subscribe now.
