Meta Reports 22% Revenue Growth, Boosts AI Spending

Meta Platforms, the social media giant, reported robust second-quarter earnings and an optimistic outlook for the third quarter, indicating that its advertising business remains a strong revenue driver, capable of sustaining its substantial investments in artificial intelligence (AI). The company's second-quarter revenue reached 47.52 billion dollars, marking a 22% year-over-year increase and surpassing market expectations. Diluted earnings per share stood at 7.14 dollars, a 38% increase from the previous year, also exceeding market forecasts.

Meta anticipates third-quarter revenue to range between 47.5 billion dollars and 50.5 billion dollars, with the midpoint of this range exceeding analysts' average expectation of 46.2 billion dollars. The company's continued growth in social media advertising is crucial for supporting its AI investments. Meta has raised the lower end of its capital expenditure forecast for 2025, as it continues to invest heavily in talent, infrastructure, data centers, and energy to maintain competitiveness in the rapidly evolving AI landscape. The company currently projects its annual expenditure to be between 66 billion dollars and 72 billion dollars, a forecast that was already increased in April due to ongoing trade disputes and AI investments.

Meta expects costs to continue rising at a faster pace next year, particularly in infrastructure development and employee compensation. A stock analyst noted that while these expenditures will impact the company's short-term profitability, Meta is well-positioned to become a clear leader in the AI field in the long run. The analyst highlighted that Meta's strong second-quarter performance was partly due to AI improvements that enhanced the company's ability to increase the average price of its advertisements.

Meta's advertising revenue saw significant growth in the United States and Canada, as well as in Europe. The company is investing heavily in new data centers and offering high compensation packages to attract top AI researchers. Recently, Meta reorganized its internal AI department, renaming it the "Meta Superintelligence Lab," with the goal of developing human-level AI capabilities and integrating this technology across all its products.

The company's AI investments have been met with approval from Wall Street, although past investments in new technologies have not always been well-received. The CEO's decision to rename the company "Meta," derived from the concept of the "metaverse," has been a subject of debate. The metaverse envisions a virtual world where users can work and socialize through wearable devices. However, Meta's hardware division has faced criticism for significant financial losses over the years. In the second quarter, Reality Labs generated 3.7 billion dollars in revenue, falling short of the 3.86 billion dollars expected by analysts, and incurred a 45 billion dollars operating loss. While sales of Meta's smart glasses increased, the sales of Quest headsets declined.

The CEO assured investors that the company's stable advertising business allows it to accelerate spending to expand its market share in AI. The CEO also noted that the advertising business has seen "substantial" revenue from new generative AI features. The CEO attributed the strong advertising performance this quarter largely to AI enhancements that improved the efficiency and profitability of the company's entire advertising system.

Meta's competitors are also increasing their investments to avoid missing out on opportunities. Recently, Alphabet raised its annual capital expenditure forecast to 85 billion dollars due to increased AI spending. An analyst compared the current AI race to historical competitions in personal computers, web browsers, search engines, and smartphones, noting that the pace of this race is much faster due to AI's ability to accelerate its own development. The analyst emphasized that winning in the AI race requires significant financial resources.

Meta's investments in AI are part of a broader strategy to stay ahead in the rapidly evolving technology landscape. The company's focus on AI is driven by the potential to revolutionize its advertising business and other product offerings. By leveraging AI, Meta aims to enhance user experiences, improve advertising effectiveness, and drive innovation across its platforms. The company's commitment to AI is evident in its substantial investments in talent, infrastructure, and technology, positioning it as a leader in the AI field.