Meta’s (META) Outlook Brightens Amid AI Investments, Despite Rising Costs

Charles HayesWednesday, Apr 23, 2025 2:37 pm ET
5min read

Meta Platforms, Inc. (NASDAQ:META) has emerged as a standout performer in the tech sector, defying expectations with robust second-quarter results and an optimistic outlook for 2025. Despite rising global AI development costs and internal challenges, analysts at KeyBanc Capital Markets and Stifel have reaffirmed their bullish stance, citing transformative progress in artificial intelligence (AI) as the key driver of growth.

Q2 Results: A Strong Foundation
Meta reported Q2 2025 revenue of $39.07 billion, exceeding estimates by $800 million, while EPS hit $5.16—$0.46 above projections. Daily active people (DAP) surged to 3.27 billion, a 7% year-over-year increase, signaling strong user engagement. Capital expenditures (capex) totaled $8.47 billion, slightly lower than the previous quarter, but annual capex guidance was raised to $37–40 billion, reflecting investments in AI infrastructure and the metaverse.

Analyst Optimism: AI’s Immediate Payoff
KeyBanc and Stifel have been vocal supporters of Meta’s AI strategy. KeyBanc reiterated an Overweight rating, raising its price target to $560, citing AI-driven efficiencies in advertising. Stifel upgraded its target to $590, emphasizing that Meta’s scale and open-source AI approach—such as the Llama series—will sustain its competitive edge. Both banks highlighted how AI tools are boosting ad revenue, with Stifel estimating 10% annual ad growth through 2026.

CEO Mark Zuckerberg echoed this sentiment, stating AI is already improving user engagement and advertiser targeting. He defended Meta’s open-source strategy against critics, arguing it fosters long-term ecosystem growth.

The Cost Conundrum
While AI is driving progress, it also poses challenges. Meta projects 2026 expenses will rise to $114–119 billion, up from $95 billion in 2024, primarily due to infrastructure costs. Competitors like DeepSeek have warned of escalating AI development expenses, but Zuckerberg remains undeterred, calling the investments “strategic.”

Technical and Market Context
BlackRock’s 2025 outlook supports Meta’s trajectory, as the firm advocates a “pro-risk” stance favoring U.S. equities, particularly those benefiting from AI innovation. Meanwhile, Meta Financial Group (CASH)—a separate entity—reported mixed results. Its Q2 net income rose to $74.3 million, but technical indicators suggest caution, with bearish trends and a low dividend yield. This distinction underscores the importance of focusing on META, not CASH, for AI-driven growth.

Conclusion: Bulls Have the Upper Hand
Meta’s Q2 results and analyst upgrades paint a compelling picture. With a Q3 revenue midpoint of $39.75 billion (vs. $39.09 billion consensus) and price targets now exceeding $590, the stock appears undervalued relative to its AI ambitions. KeyBanc and Stifel’s confidence is grounded in hard data: 7% DAP growth, 10% ad revenue projections, and capex strategically aligned with AI dominance.

While costs will rise, the company’s scale—$39 billion in quarterly revenue—and leadership in open-source AI suggest it can weather expenses better than rivals. With BlackRock’s equity bullishness and Meta’s execution to date, investors would be wise to consider this stock as a core holding in an AI-centric portfolio. The path forward is clear: bet on Meta’s ability to turn AI investments into sustained growth.

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