Meta Surges on AI-Fueled Beat and Cost Discipline, Shrugs Off China Ad Woes

Meta Platforms delivered a powerful first-quarter earnings report that easily topped Wall Street expectations, sending shares higher in after-hours trading. The company reported significant beats on both revenue and profit, boosted by better-than-expected ad pricing and continued cost discipline, while also raising its capital expenditure forecast in a move signaling long-term AI infrastructure investment. Despite macro concerns around tariffs and regulatory pressure in Europe, investors interpreted the report as a sign of Meta’s growing strength in monetization and margin leverage.

For the first quarter, Meta posted adjusted earnings per share of $6.43, well ahead of the $5.25 consensus estimate and up from $4.71 a year ago. Revenue came in at $42.31 billion, up 16% year-over-year and above the $41.38 billion Wall Street estimate. Operating income jumped 27% to $17.56 billion, and the operating margin expanded to 41%, a significant improvement from 38% a year ago and well above expectations of 37.5%. The performance was led by better-than-forecast ad pricing, lower-than-expected expenses, and a narrower loss in the Reality Labs unit.

Advertising revenue totaled $41.39 billion, beating the $40.55 billion consensus. Growth in ad revenue was driven by a 10% increase in the average price per ad, outpacing estimates of 6.75%. However, ad impressions rose just 5%, a noticeable slowdown from the 20% growth in the prior year and slightly below the 6.9% estimate. Analysts had expected a weaker ad environment given the pullback in China-based e-commerce advertiser spending due to tariff headwinds, but the stronger-than-expected pricing helped Meta more than offset that volume deceleration.

Family of Apps revenue, which includes Facebook, Instagram, and Messenger, grew 16% to $41.9 billion, above the $40.89 billion estimate. Reality Labs revenue, however, fell 6.4% year-over-year to $412 million, missing the $496 million estimate, as enthusiasm around AR/VR continues to moderate. Nonetheless, the operating loss in the division came in at $4.21 billion, less than the expected $4.54 billion loss, offering a slight reprieve.

Expenses remain in focus. Total costs and expenses rose 9% to $24.76 billion, slightly below expectations. Notably, Meta lowered its full-year expense forecast to a range of $113 to $118 billion, down from the prior $114 to $119 billion. Capital expenditures, however, were increased substantially: Meta now expects to spend $64 to $72 billion in 2025, up from the previous $60 to $65 billion guidance. CFO Susan Li attributed the increase to expanded data center investments and infrastructure hardware tied to its aggressive AI roadmap.

The AI buildout was a major highlight of the report. Analysts including Gene Munster and Dan Ives emphasized the significance of the CapEx raise, calling it "the biggest takeaway" and a "shot heard round the market". Nvidia shares jumped in sympathy, with investors interpreting Meta’s infrastructure scale-up as a sign of enduring AI demand and accelerating LLM deployments, such as Llama.

User growth metrics were solid. Family daily active people (DAP) reached 3.43 billion, up 6% year-over-year and slightly ahead of the 3.33 billion consensus. Free cash flow came in at $10.33 billion, supporting an ongoing capital return program that included $13.4 billion in share repurchases and $1.33 billion in dividends during the quarter.

Guidance for the second quarter also pleased investors. Meta forecast Q2 revenue of $42.5 billion to $45.5 billion, in line with the $44 billion Street consensus and better-than-feared. That guidance implies a roughly 3% upward revision at the high end versus prior internal forecasts, and comes despite the known headwinds from Chinese advertisers like Temu and Shein pulling back. Analysts believe that without those disruptions, the revenue guide could have been even stronger.

On the regulatory front, Meta acknowledged new pressure from the European Commission, which has deemed its subscription-based no-ads model non-compliant with the Digital Markets Act. The company warned that changes to its ad model may be required as soon as Q3 2025, which could materially impact user experience and revenue in Europe. Still, most analysts view this as a 2025-2026 story and not material enough to overshadow strong Q1 execution.

The company also reaffirmed its long-term vision anchored in AI. CEO Mark Zuckerberg emphasized continued investments in AI agents, open-source models, and monetization pathways through Threads and messaging. Meta continues to position itself as a key player in the next generation of AI-enabled platforms, and its CapEx trajectory suggests full commitment to that strategy.

In sum, Meta's Q1 report checked nearly every box for investors. Revenue and earnings beat across the board. Guidance topped expectations. Expenses were managed more tightly than forecast, and while CapEx increased, it reflects forward-looking strategic investment in AI infrastructure. In a quarter fraught with macro worries, Meta showed resilience and conviction in its roadmap, giving bulls a reason to stay long.

Watch: What you need to know before AMZN's earnings.