Meta Platforms stock rallied early Thursday on the social media giant's strong second quarter earnings. Meta posted better-than-expected growth for the Facebook parent company's advertising business, buying more time for Chief Executive Mark Zuckerberg's expensive AI vision.
Revenue for the Facebook and Instagram parent company in the June ended quarter advanced 22% year-over-year to $39.07 billion. Analysts were expecting $38.26 billion in sales for the Menlo Park, Calif.-based company, according to FactSet.
Earnings were $5.16 per share, up 73% from a year earlier. Analysts were expecting $4.72 per share, according to FactSet.
For the current quarter, Meta projects that it will record between $38.5 billion and $41 billion in revenue for the third quarter. Prior to Meta reporting results, analysts were forecasting $39.1 billion in sales for the September-ending quarter.
"We had a strong quarter, and Meta AI is on track to be the most used AI assistant in the world by the end of the year," Meta CEO Mark Zuckerberg said in a statement. "We've released the first frontier-level open source AI model, we continue to see good traction with our Ray-Ban Meta AI glasses, and we're driving good growth across our apps."
On the stock market today, Meta stock jumped more than 8% to 516.14 in premarket action.
Meta Stock: Scaling Up AI Spending
The market for social media advertising on Facebook and Instagram – which powers nearly all of Meta's revenue – remains strong. Ad impressions and average price per ad for Meta both increased 10% year-over-year for the quarter, the company said.
Meta's net income of $13.47 billion for the quarter was up 73% year-over-year.
"We are in the fortunate position where the strong results that we're seeing in our core products and business give us the opportunity to make deep investments for the future," Zuckerberg said on the company's earnings call Wednesday.
Those investments are centered around building datacenter capacity to power Meta's AI ambitions. Meta once again upped expectations for 2024 capital expenditures. In its news release, the company said to expect between $37 billion and $40 billion in capital expenditures this year. That is up from its previous range of $35 billion to $40 billion.
The company did not release estimates for 2025 capex costs. But Chief Financial Officer Susan Li said the company expects "significant capital expenditures growth in 2025 as we invest to support our artificial intelligence research and product development efforts."
The social media giant also upped its capex forecast when it gave first quarter results in late April. At that time, the increased spending was enough to send Meta stock sharply lower.
Investors are increasingly anxious about when the significant costs of training and operating AI models will payoff for tech giants. Microsoft's and Google's stocks were hit by similar concerns when they reported earnings recently.
When Will AI Spending Pay Off?
Zuckerberg acknowledged that the company's AI vision is a long-term project. But he said he would "rather risk building capacity before it is needed rather than too late."
Meanwhile, AI is already improving content recommendations within Facebook and Instagram. Zuckerberg expects the company will eventually be able to offer fully automated advertising plans to businesses.
"Over the long-term, advertisers will basically just be able to tell us a business objective and a budget and we're going to go do the rest for them," Zuckerberg said on the analyst call.
Analysts appeared satisfied with how Zuckerberg described the company's vision.
"Meta reported a strong beat and raise (quarter), helping to justify elevated capex," RBC analyst Brad Erickson wrote to clients Wednesday.
Meta's "management also better unpacked the AI strategy," Erickson added, "which investors have been wanting given rising (return on invested capital) scrutiny."
Debra Aho Williamson, founder and chief analyst of Sonata Insights, said Meta's results act as a "bellwether" for AI stocks.
"Meta stands out from other tech firms that have AI ambitions because it already brings in a massive amount of revenue from digital advertising," Williamson said in an email.
"It's not trying to build a new business from scratch. And unlike Google, which is grappling with making changes that will impact its core ad business, most of Meta's AI investments are either aimed at making advertising on its properties work better, or at building new features that could eventually become revenue drivers."
Meta Stock: Down 6% In July Prior To Report
The earnings report puts a positive end to a rough month of July for Meta stock. Coming into the report, shares have fallen roughly 6% since June 30. Meta stock was down more than 12% from a record high of 542.81 reached on July 5.
Meta's recent slide has come as the broader group of Magnificent Seven stocks have struggled. Investors have rotated from outperforming big tech stocks and into other markets following a cool inflation print that raised hopes for a rate cut in September.
Meta stock also fell after Google reported lower than expected ad revenue for its YouTube division last week.
Meta stock remains more than 3% below its 50-day moving average. Shares fell below the 50-day line in heavy volume earlier this month.
Shares have also plunged well below a 514.01 cup-with-handle buy point that marked a potential break out on June 27. Meanwhile, Meta stock's Relative Strength line has fallen from a 95 (out of 99) earlier this month to 86.
Meanwhile, the IBD Stock Checkup tool shows Meta stock had an IBD Composite Rating of 85 from a best-possible 99 prior to its report. The score places Meta in the top 15% of stocks by key performance metrics and technical strength. But the top growth stocks typically hold scores above 90.
