Meta’s Significant AI Investments Boosting Engagement Strength

Meta Platforms’ substantial investments in artificial intelligence are enhancing the company’s content recommendation systems, giving it a “competitive advantage,” according to analysts at Citi.

In their recent analysis, the Citi team noted ongoing user engagement and strong demand, particularly highlighting growth in the “ad load” of Instagram’s short-form video segment, Reels. Ad load refers to the proportion of advertising content within a specific digital environment or timeframe, and it is expected to have increased by 70 basis points to 22.2% in the third quarter.

As a result of these insights, the analysts have raised their price target for Meta’s stock from $580 to $645, designating it as their top pick in the Internet sector. They remarked that Meta’s competitive edge is now “deeper and wider” due to improved engagement, investments in generative artificial intelligence, and various new offerings on the horizon.

In July, Mark Zuckerberg, CEO of Meta, indicated that the robustness of the company’s core advertising business would support its ambitious AI spending plans for the future. Meta has also adjusted its annual capital spending outlook, increasing the lower end of its forecast from $35 billion to a new range of $37 billion to $40 billion. However, the overall expense guidance for the year remains unchanged at $96 billion to $99 billion.

The company anticipates that infrastructure costs will play a significant role in expense growth next year, as it recognizes depreciation and operating costs associated with expanding its infrastructure.

For the third quarter, Meta has projected total revenue between $38.5 billion and $41 billion, with a midpoint estimate of $39.75 billion, surpassing Wall Street’s expectations of $39.09 billion. Additionally, for the quarter ending June 30, Meta reported earnings of $5.16 per share on revenue of $39.07 billion, exceeding forecasts of $4.70 per share and $38.26 billion in revenue.