Meta Seizes Its Moment To Spend More Aggressively In The AI Race

Meta Platforms Inc. is taking advantage of its lucrative advertising business and stepping up spending next year, with executives saying now is the time to seize on investment opportunities in artificial intelligence.

Investors cheered the plan, sending shares up more than 10% in after-hours trading. The social media giant reported second-quarter earnings on Wednesday that beat Wall Street estimates and forecast better-than-expected results for the current quarter. 

“We really believe that this is a time for us to really make investments in the future of AI, as I think it will open up both new opportunities for us in addition to strengthen our core business,” Chief Financial Officer Susan Li told investors during a call. Meta executives underscored that its evolving AI technology, which has been integrated into its ads products, is already producing “meaningful” revenue.

Meta and its big tech peers, including Alphabet Inc. and Microsoft Corp., are relying on their legacy businesses to fund their pursuits of pricey AI talent and data centers, adding billions to their spending plans with full support from Wall Street. Meta lifted the low end of its forecast for 2025 capital expenditures, while also providing early steer on 2026 spending. Meta said costs will continue to grow at an even faster pace next year — particularly as it focuses on AI infrastructure needs and the niche technical talent that can fine-tune its models. 

The strategy only works for Meta if the company keeps printing money from advertising. So far, it is. Meta’s current-quarter sales are expected to be $47.5 billion to $50.5 billion, Meta said. The midpoint of that range exceeded the average analyst estimate of $46.2 billion, according to data compiled by Bloomberg. 

That ads business, Chief Executive Officer Mark Zuckerberg said, is already seeing a “meaningful” amount of revenue from new generative AI features. “On advertising, the strong performance this quarter is largely thanks to AI unlocking greater efficiency and gains across our ad system,” he said. 

Meta “crushed it” in the quarter, in part because AI improvements allowed the company to increase the average price of its ads, Matt Britzman, an equity analyst at Hargreaves Lansdown, said in an email. “All this spending adds some near-term risks to the bottom line, but Meta looks set to be a clear winner in the AI space over the longer term.” 

Meta stock was up 19% so far this year before Wednesday’s report.

Zuckerberg is spending to build new data centers and lure top AI researchers with compensation packages valued at hundreds of millions of dollars, Bloomberg has reported. The company recently restructured its internal AI division, now referred to as Meta Superintelligence Labs, in an effort to build human-level AI capabilities and apply that technology across its products. The group is led by Alexandr Wang, the former CEO of data labeling company Scale AI, who joined Meta in June after Zuckerberg paid $14.3 billion for a 49% stake in the company.

Wall Street has previously been more skeptical of Zuckerberg’s big bets on new technology. He renamed the company Meta after the “metaverse,” the idea that people would work and socialize in a virtual world with the help of headsets. That vision has been slow to take hold.

At the same time, Meta’s hardware division has come under scrutiny for bleeding cash for years. In the second quarter, Reality Labs generated $370 million in revenue — less than the $386 million analysts expected — with $4.5 billion in operating losses. While the company sold more smart glasses, it saw a decline in sales for its Quest headsets.

AI is different, because Meta’s competitors are making similar decisions. Last week, Alphabet raised its full-year capital expenditure forecast to $85 billion due to higher AI spending. At Microsoft, Chief Financial Officer Amy Hood said the company would spend upwards of $30 billion in the current quarter, which would be at least 50% more than the outlay during the same period a year earlier.

“In some ways, this race is historically akin to the races for the PC, web browser, search engine and smartphone,” Mike Proulx, an analyst at Forrester, wrote in a note. “But the big difference is that this race is pacing so much faster because AI — the very thing that Meta and others are racing towards — helps to accelerate itself.”

Proulx added that to win the AI race, companies will need to reach into their “deep pockets.”