Meta’s Strong Revenue Growth Boosts Market Value, Validating AI Investments

137

Meta Platforms Inc. (META.O), the parent company of Facebook, experienced a significant surge in its stock price, rising nearly 9% on Thursday. This boost came after the company reported strong revenue growth, indicating that robust digital advertising spending on its social media platforms can effectively offset the costs associated with its investments in artificial intelligence (AI). This positive development has propelled Meta to be on track to add approximately $120 billion to its market value, bringing it to a total of $1.204 trillion.

The company’s impressive second-quarter revenue exceeded expectations, and its growth forecast for the July-September period surpassed Wall Street’s estimates. This optimistic outlook for Meta comes on the heels of encouraging earnings reports from other digital advertising giants, such as Google, which led to a rise in the shares of smaller competitors like Snap (SNAP.N) and Reddit (RDDT.N) by 2.7% and 4.4%, respectively. Notably, Snap, the parent company of Snapchat, was scheduled to report its earnings after the market closed on Thursday.

Analysts have noted that Meta’s strong performance has given its CEO, Mark Zuckerberg, additional time to demonstrate the value of the substantial investments the company is making in AI. Despite a 7% increase in costs during the second quarter, Meta’s robust revenue growth contributed to a 9-point increase in its operating margin, reaching 38%.

Bernstein analyst Mark Shmulik commented, “Despite facing challenging comparisons, a difficult macroeconomic environment, and mixed feedback from peers, Meta continues to be the premier destination for deploying digital ad dollars worldwide.” He further added, “While capital expenditures in 2025 are expected to be significantly higher, it remains uncertain whether they will outpace revenue growth next year. Core AI investments are yielding great returns, and generative AI is expected to offer significant returns as well.”

Chief Financial Officer Susan Li emphasized that Meta is benefiting from a multi-year initiative to leverage AI for enhancing the targeting, ranking, and delivery systems of digital ads across its platforms. The company anticipates capital expenditures ranging from $37 billion to $40 billion in 2024. This surge in spending aligns with forecasts from other major tech companies that are heavily investing in AI to capitalize on the burgeoning technology.

J.P. Morgan analysts noted, “Generative AI will necessitate substantial infrastructure investments to train the next generation of large foundational models, and Meta is proactively preparing for a multi-year capacity ramp-up.”

In terms of valuation, Meta’s 12-month forward price-to-earnings ratio stands at 21.1, compared to Alphabet’s 20.6 and Microsoft’s 31, according to data from LSEG. Analysts have set a median price target of $550 for Meta’s shares, indicating continued optimism about the company’s growth prospects.

Overall, Meta’s strong revenue performance and strategic investments in AI underscore its commitment to maintaining a leadership position in the digital advertising space, even as the industry undergoes rapid transformation.