Meta Platforms shares powered firmly higher in early Thursday trading, potentially adding nearly $100 billion in market value, as analysts and investors picked through details of the social media group's impressive second quarter earnings.
Meta (META) , which has trailed only chipmaker Nvidia (NVDA) in year-to-date gains among the Magnificent 7 tech stocks, is seen by many analysts as the first likely megacap tech group to directly benefit from AI investment spending.
The group will likely devote $37 billion to $40 billion of capital spending to AI this year, based on comments following its stronger-than-expected Q2 report last night, but is already is seeing a boost in both its ad-based revenue and broader product engagement from its 3.27 billion global active users.
"We believe Meta's 2Q print reinforced [that] the core business is seeing AI returns today while AI assistants and agents create returns over the medium term," said KeyBanc Capital Markets analyst Justin Patterson, who lifted his Meta stock price target by $20 to $560 a share.
"As AI creates more efficiencies for merchants around the world, we believe this can drive further share gains and support consistent 10%+ annual advertising revenue growth," he added.
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Meta posted stronger-than-expected overall revenue of $39.1 billion over the three months ended in June, a 22% gain from the same period last year, amid what it called "healthy global advertising demand," helped by its AI technology infusions.
Meta, which also owns Instagram and the WhatsApp messaging app, forecast current-quarter revenue in the region of $38.5 billion to $41 billion, again topping Wall Street estimates.
AI will affect 'every product we have': Zuckerberg
"I think we're on track to achieve our goal of being the most-used AI assistant by the end of this year, and I think that's a pretty big deal," CEO Mark Zuckerberg told investors on a conference call late Wednesday.
"We obviously want to kind of grow that and grow the engagement on that to be a lot deeper, and then we'll focus on monetizing it over time," he added.
"But the early signals on this are good [and] I do think that part of what's so fundamental about AI is it's going to end up affecting almost every product that we have in some way."
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UBS's Lloyd Walmsley, who added $5 to his Meta Platforms price target, taking it to $635 a share, said one of the group's "[generative-AI] monetization timeline and potential new products" was a key takeaway from last night's earnings.
But the analyst expects "a significant step up in [capital spending] for 2025" and a modest deceleration in ad revenue over the second half of this year.
JPMorgan analyst Doug Anmuth also expects a "significant increase" in capital spending for the coming year, which Meta will likely lay out in October. But he says that "Meta's strategic investments in AI and infrastructure are setting the stage for long-term growth."
Anmuth lifted his price target by $130 to $610 a share, while affirming his 'overweight' rating.
"GenAI will require significant infrastructure investments to train the next generation of large foundational models, and Meta is getting ahead of a multiyear capacity ramp, although core products will remain the primary driver of monetization through 2026," Anmuth said. (Generative AI uses machine learning to derive original material from existing text, images, audio, video and more.)
Ad spending gains impress
Guggenheim analyst Michael Morris, who lifted his Meta price target by $100 to $600 a share, said the group's results and outlook "reinforce the bull case, showing that the company remains a critical destination for advertiser dollars."
Strong usage growth and continued AI investments position Meta well for future growth," he added. "With significant [capital spending] planned for 2025, Meta is well-positioned to capitalize on its leading position in social media and advertising."
"Meta's Q2 results showed very strong ad revenue growth and significant margin expansion. The company is effectively deploying AI to enhance consumer and advertiser experiences. The valuation remains attractive, with Meta well-positioned for long-term growth in AI and digital advertising."
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Mark Mahane at Evercore ISI, who lifted his Meta price target by $50 to $600 a share following last night's report, said the group's valuation remains attractive and the company is well-positioned for long-term growth in AI and digital advertising.
"Meta's Q2 results showed very strong ad revenue growth and significant margin expansion," he added. "The company is effectively deploying AI to enhance consumer and advertiser experiences."
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Goldman Sachs analyst Eric Sheridan, meanwhile, noted that while "debates will likely persist around product transitions and industry platform headwinds," the group's "large scaled audience across their family of apps" is compelling.
"Recent top-line headwinds, such as platform policy changes and macroeconomic volatility, are expected to abate or turn into tailwinds by 2025," said Sheridan, who lifted his price target by $33 to $555 a share.
"Positive momentum across Meta's key product initiatives, including Reels, is particularly encouraging." Reels is Meta's short-form video platform.
Meta Platforms shares were marked 8.8% higher in early Thursday trading and changing hands at $516.52 each, a move extends the stock's year-to-date gain to around 45%.
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