Meta Surges as Robust Ad Revenue Supports AI Investments, Reports Reuters

Meta’s Market Surge: Revenue Growth and AI Investments Shine

By Aditya Soni and Reshma Rockie George

Meta experienced a significant boost of nearly 9% in its stock price on Thursday, driven by strong revenue growth that indicated robust digital advertising spending across its social media platforms could effectively fund its investments in artificial intelligence.

The parent company of Facebook is poised to add around $120 billion to its current market value of $1.204 trillion, following its impressive second-quarter earnings that exceeded expectations and a promising outlook for the July-September period that also surpassed Wall Street forecasts.

This positive development for Meta reflects an encouraging trend in the digital advertising sector, especially after strong earnings from Google prompted increases in the shares of smaller competitors like Snap and Reddit, which rose by 2.7% and 4.4%, respectively. Snap’s parent company is expected to report its earnings later on Thursday.

Analysts noted that Meta’s impressive results provide CEO Mark Zuckerberg with additional time to demonstrate the potential returns on the substantial investment the company is making in AI. Despite a 7% rise in costs during the second quarter, Meta’s robust revenue growth led to a notable increase in its operating margin, which climbed nine points to 38%.

Mark Shmulik, an analyst at Bernstein, remarked that "despite challenging comparisons and a mixed macroeconomic landscape, Meta remains one of the most attractive options for digital advertising investment globally." He further noted that while capital expenditures are expected to rise significantly in 2025, the exact trajectory of revenue growth next year remains uncertain. He expressed optimism about the strong returns expected from core AI initiatives and generative AI.

Meta’s Chief Financial Officer, Susan Li, highlighted that the company is beginning to see the benefits of a multi-year initiative aimed at utilizing AI to enhance ad targeting, ranking, and delivery systems across its platforms.

The company anticipates capital expenditures ranging from $37 billion to $40 billion in 2024, reflecting a trend among leading tech firms that are investing heavily in AI to leverage the technology’s expansive growth potential.

According to analysts from J.P. Morgan, the advancement of generative AI will necessitate substantial infrastructure investments to develop next-generation foundational models, and Meta is positioning itself ahead of a multi-year capacity ramp-up.

Meta’s 12-month forward price-to-earnings ratio is currently at 21.1, compared to Alphabet’s 20.6 and Microsoft’s 31. Analysts have set a median price target of $550 for Meta’s shares, indicating positive sentiment about the company’s future prospects.