Meta Exceeds Expectations: A Case for AI Investment

Meta Platforms reported a strong beat with management having proven cost discipline and capex investments showing returns. The company is an underappreciated opportunity according to previous analysis, with returns on AI investments not being fully appreciated. The recent earnings report highlights the company's strong performance, which could indicate further growth potential.

Meta Platforms (META) recently reported a robust second quarter (Q2) performance, with a 21% increase in share price over the last quarter. The company's financial results, released on July 2, 2025, showcase significant growth and strategic investments in AI, underlining its commitment to digital safety and engagement.

Key Metrics and Performance

Meta Platforms reported $47.52 billion in revenue for the quarter, a 21.6% year-over-year increase, surpassing the Zacks Consensus Estimate of $44.84 billion [2]. Earnings per share (EPS) reached $7.14, up 22.47% from the previous year, compared to the consensus estimate of $5.83 [2].

The company's revenue growth was driven by a 24.4% increase in advertising revenue from Europe and a 24.1% increase in revenue from the Rest of the World. The Family of Apps (FoA) revenue also saw a substantial 21.8% increase, highlighting the strong performance of its core business units [2].

AI Investments and CapEx

Meta Platforms' heavy investment in AI-related capital expenditures (CapEx) is paying off, as indicated by the company's latest earnings report. The company plans to spend between $66 billion and $72 billion on AI-related CapEx in 2025, a significant increase from previous years [3]. This investment is part of Meta's broader strategy to compete in the AI race and drive its core advertising business.

The company's CapEx-to-sales ratio is higher than its peers, leading to questions about the rationale behind its spending. However, Meta's AI-driven ad tools have shown promising results, with AI-powered ad recommendations driving about 5% more conversions on Instagram and 3% on Facebook in the second quarter [3].

Future Growth Potential

Meta Platforms' strong Q2 performance and strategic investments in AI position the company for further growth. The company's ability to generate returns from its AI investments and maintain cost discipline could indicate significant growth potential in the coming quarters.

Analyst Expectations

Analysts forecast an annual revenue growth of 11.5% and a 34.6% profit margin within three years. The recent share price movement to $695.21 shows the stock trading slightly below the consensus price target of $756.13, suggesting room for appreciation [1].

Conclusion

Meta Platforms' strong Q2 performance, driven by AI investments and cost discipline, highlights the company's potential for future growth. Investors may find the narrow price gap to the target reflective of general market sentiment and sector forecasts.

References

[1] Simply Wall St. "Meta Platforms: A Hidden Gems in Tech Stocks." Retrieved from https://simplywall.st/stocks/us/media/nasdaq-meta/meta-platforms/news/meta-platforms-meta-joins-global-signal-exchange-reports-str
[2] Nasdaq. "Meta Platforms (META) Reports Q2 Earnings: Key Metrics." Retrieved from https://www.nasdaq.com/articles/meta-platforms-meta-reports-q2-earnings-what-key-metrics-have-say
[3] AInvest. "Meta's AI CapEx Spend Paying Off, Says Analyst." Retrieved from https://www.ainvest.com/news/meta-ai-capex-spend-paying-analyst-2507/