Meta Platforms Surges Ahead of S&P 500 with Strong Ad Revenue Growth

Meta Platforms' stock has surged nearly 30% YTD, outperforming the S&P 500. Its AI-driven ads have increased user engagement and ad revenue, giving the company more room to expand its ecosystem. Despite a P/E ratio of 27, the stock is reasonably valued relative to its growth potential.

Meta Platforms' stock has surged nearly 30% year-to-date (YTD), outperforming the S&P 500. This impressive performance is driven by the company's robust user base growth and AI-driven advertising strategies. In the second quarter of 2025, Meta Platforms reported 3.48 billion daily active people (DAP), an increase of 6.4% year-over-year, and is expected to reach 3.57 billion by the end of 2025 [1]. This growth is attributed to enhanced safety measures and AI integration, which have significantly boosted user engagement and ad revenues.

Meta's AI-driven ad initiatives have been particularly effective. In Q2 2025, the company leveraged AI to boost ad revenue by 21% to $46.56 billion, driving a 43% operating margin [2]. The AI-driven ad flywheel, which optimizes ad targeting and reduces cost-per-click, has been a key driver of this growth. This flywheel creates a self-sustaining cycle where improved ad performance generates more user data, which refines AI algorithms, enhancing ad efficiency and revenue.

Moreover, Meta's strategic rebranding as an AI-first enterprise has been well-received by investors. The company's stock price rose by 30% in 2025, with a $9.76 billion share repurchase program, despite regulatory risks and significant AI/R&D costs [2]. This rebranding has positioned Meta as a leader in the AI era, with a focus on "personal superintelligence" that augments human capabilities.

However, Meta faces significant challenges, including regulatory hurdles and the high cost of AI infrastructure deployment. The company is investing heavily in AI, with a plan to deploy 2 million GPUs by FY26, but these costs are straining the Reality Labs division, which reported a $4.53 billion loss in Q2 2025 [3]. Despite these challenges, Meta's AI-driven growth and strategic rebranding present a compelling investment opportunity.

Meta's stock is reasonably valued relative to its growth potential, with a forward 12-month Price/Sales ratio of 8.69X compared to the broader sector's 6.67X [1]. The Zacks Consensus Estimate for 2025 earnings is $28.13 per share, indicating 18% year-over-year growth. However, investors should be cautious about regulatory risks and the high cost of GPU deployment.

References:
[1] https://finance.yahoo.com/news/meta-platforms-rides-expanding-user-181000338.html
[2] https://www.ainvest.com/news/meta-ai-driven-ad-resurgence-strategic-rebranding-blueprint-sustainable-growth-ai-era-2508/
[3] https://www.ainvest.com/news/meta-ai-regulatory-risk-strategic-rebalancing-navigating-safeguards-political-scrutiny-protect-growth-valuation-2508/