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Meta's AI Ambitions Drive Strong Q2 Performance

Meta Platforms (META) shares surged over 9% in early trading Thursday, following the release of its better-than-expected second quarter earnings.

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The company reported earnings per share (EPS) of $5.16 on revenue of $39.07 billion, surpassing analysts’ expectations of $4.74 EPS on $38.3 billion in revenue. This marks a significant year-over-year increase from $2.98 EPS on $31.9 billion in revenue during the same period last year.

Meta’s Family of Apps, which includes Facebook, Instagram, WhatsApp, and Messenger, brought in $38.72 billion, exceeding estimates of $37.7 billion and showing growth from $31.7 billion in the previous year’s quarter. The robust performance was driven by higher average ad prices and increased ad impressions across its platforms.

Rising Expenses and AI Investments
Despite the positive earnings, Meta cautioned about substantial capital expenditures (CapEx) growth in 2025. CFO Susan Li noted that infrastructure costs will be a significant driver of expense growth next year, as the company recognizes depreciation and operating costs associated with its expanded infrastructure footprint. Meta’s CapEx for fiscal year 2024 is now projected to be between $37 billion and $40 billion, up from previous estimates.

Meta’s aggressive investment in AI is a key focus for Wall Street. During the earnings call, Li emphasized that AI tools are driving growth, with a 22% increase in return on ad spending in the U.S. CEO Mark Zuckerberg highlighted the launch of Meta’s latest open-source large language model, Llama 3.1, and hinted at the upcoming Llama 4, aiming to be the industry’s most advanced AI model by next year.

Balancing AI and Core Business Performance
Meta’s financials continue to benefit from cost-cutting measures initiated in late 2022. Operating income climbed 58% to $14.9 billion, with an expanded operating margin of 38%, up from 29% in the previous year. Net income surged 73% to $13.47 billion, with EPS of $5.16 exceeding consensus estimates of $4.73 per share.

While Meta’s Reality Labs segment, which includes mixed reality hardware and software, saw revenue of $353 million, slightly below expectations, it continues to incur substantial losses. The segment reported a loss of $4.49 billion in Q2, compared to $3.8 billion in Q1. Nonetheless, investors remain optimistic about Meta’s AI investments, as evidenced by the stock’s positive reaction to the earnings report.

Future Outlook and Market Impact
For the third quarter, Meta expects revenue between $38.5 billion and $41 billion, aligning with Wall Street’s expectations. The company’s continued focus on AI infrastructure spending underscores its commitment to staying ahead of technological advancements. Zuckerberg reiterated that there is a greater risk in underinvesting in AI capacity, given its anticipated role over the next decade.

Meta’s impressive Q2 results, including a 22% increase in revenue and a strong performance in its core advertising business, have allayed investor concerns about its heavy AI spending. The company’s ability to balance immediate earnings growth with long-term investment in AI has reinforced confidence among investors, marking a stark contrast to its performance during the metaverse-focused investments of 2022.

As Meta continues to expand its AI capabilities and invest in future growth, the tech giant remains a significant player in the digital ad market, poised to capitalize on the burgeoning AI boom.


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