Why Meta Shares Are Climbing Today: AI's Surge and the Metaverse's Hidden Value

Meta Platforms (META) has surged to near-record highs in early June 2025, driven by a confluence of factors that underscore its transformation into a leader in artificial intelligence (AI) and its underappreciated progress in metaverse-related monetization. While skeptics have long dismissed Meta's metaverse ambitions as a costly distraction, the company's recent results reveal a nuanced story: AI is not only revitalizing its core advertising business but also laying groundwork for future growth in virtual worlds. Let's dissect the catalysts behind the rally and assess whether the optimism is justified.

The AI Revolution: Fueling Immediate Growth

The most immediate driver of Meta's stock performance is its AI-driven advertising renaissance. In Q1 2025, Meta reported a 16% year-over-year jump in ad revenue to $41.4 billion, far exceeding analyst expectations. This growth stems from AI tools that optimize ad targeting, creative content, and pricing. For instance, Meta's AI chatbots and recommendation algorithms now boost ad conversion rates, while new tools automate ad creation for small businesses—a market previously underserved due to complexity.

The Scale AI acquisition—Meta's $14.3 billion bet on a leading data-labeling platform—has been pivotal. By integrating Scale's expertise, Meta is accelerating development of its Llama 4 AI model, which powers everything from Instagram's personalized feeds to WhatsApp's new AI chat features. The appointment of Scale's CEO Alexandr Wang to lead Meta's “superintelligence unit” signals a strategic pivot: the company is now treating AI as a core competency, not just a gimmick.

The Metaverse: More Than a Money Pit?

Critics have long dismissed Meta's Reality Labs division as a black hole for cash, citing cumulative losses exceeding $62 billion since 2021. Yet two trends suggest the metaverse's value is being underestimated:

1. Hardware Monetization: While virtual reality (VR) headsets like the Meta Quest 3 haven't turned a profit, adjacent hardware—such as AI-powered Ray-Ban smart glasses—is gaining traction. These glasses, which integrate augmented reality (AR) features, saw user growth triple in early 2025. Analysts note that wearable devices could eventually bridge the physical and digital worlds, creating new ad and subscription revenue streams.

2. WhatsApp's Quiet Revolution: Meta's plan to introduce ads in WhatsApp's “Updates” tab—a feature used by 1.5 billion daily users—could unlock a $6 billion revenue stream by 2026. This initiative, paired with subscription-based content (e.g., premium access to creators), demonstrates how Meta is applying metaverse-like thinking to its existing platforms. The metaverse isn't just VR; it's a broader shift toward immersive, interconnected digital experiences.

Risks and the Case for Caution

Meta's ascent isn't without challenges. The EU's recent ruling against its “no-ads subscription” model—a critical ad revenue lever—could force costly adjustments. Meanwhile, competitors like Google and OpenAI are nipping at Meta's heels in AI, while metaverse hardware faces stiff competition from Apple.

The Investment Thesis: Buy the Dip, but Watch the Horizon

Meta's stock is up 19% YTD, yet its $710 average price target suggests upside remains. Here's why investors should consider dipping their toes in:

• AI's Compounding Power: Every dollar invested in AI today could yield exponential returns as tools like autonomous ad campaigns and AI-generated content scale.
• WhatsApp's Untapped Potential: With 3 billion users, WhatsApp is Meta's sleeper asset. Even modest monetization could add billions to its bottom line.
• Valuation Comfort Zone: At 25x trailing earnings, Meta trades near its historical average, offering a buffer against near-term ad slowdowns.

However, investors must remain vigilant. A recession could crimp ad budgets, and metaverse losses must eventually stabilize. For now, the balance tilts toward bullishness—but keep an eye on Q3 earnings for clues on ad health and Reality Labs' trajectory.

Backtest the performance of Meta (META) when 'buy condition' is 1 trading day before quarterly earnings announcements and 'hold for 20 trading days', from 2020 to 2025.
Historically, this strategy has delivered strong results: buying Meta one day before earnings and holding for 20 days since 2020 has averaged a 37% return, though with notable volatility marked by a 29.58% maximum drawdown. This underscores the potential reward of earnings-driven trades but also highlights the need for risk management.

Final Takeaway

Meta's rally isn't just about today's profits; it's a bet on tomorrow's tech. The company's AI-driven ad engine is firing on all cylinders, while its metaverse investments—though still unprofitable—are quietly building infrastructure for the next wave of digital engagement. For investors willing to look past quarterly losses in Reality Labs, Meta's stock offers a compelling mix of growth and value. Just don't forget to pack a parachute: the path to the metaverse is bumpy, but the destination could be worth the ride.