Meta Stock Rises as Company Unpacks AI Strategy and Strong Q2 Earnings

Meta's stock surged over 8% early Thursday following the release of its strong second-quarter earnings. The social media giant, parent company of Facebook and Instagram, reported a 22% year-over-year revenue increase to $39.07 billion, surpassing analysts' expectations of $38.26 billion.

Impressive Earnings and Future Projections

Meta's earnings per share soared to $5.16, a 73% increase from the previous year, beating the forecasted $4.72. For the upcoming quarter, Meta projects revenue between $38.5 billion and $41 billion, while analysts had predicted $39.1 billion.

"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," said Meta CEO Mark Zuckerberg. "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."

Robust Advertising Business

Meta's advertising business, which fuels nearly all its revenue, remains strong. Ad impressions and average price per ad increased by 10% year-over-year. Meta's net income for the quarter was $13.47 billion, also up 73% from the previous 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.

AI Investments and Market Reactions

Meta's significant investments are centered around building datacenter capacity to support its AI ambitions. The company raised its 2024 capital expenditures forecast to $37 billion to $40 billion, up from the previous range of $35 billion to $40 billion. Chief Financial Officer Susan Li indicated further growth in capital expenditures for 2025 to support AI research and product development.

Investors are closely watching the substantial costs associated with AI model training and operations. Zuckerberg acknowledged the long-term nature of Meta's AI vision but emphasized the importance of building capacity ahead of demand.

AI Enhancements and Advertising Automation

AI is already enhancing content recommendations on Facebook and Instagram. Zuckerberg envisions a future where advertisers can set business objectives and budgets, and Meta's AI will handle the rest.

"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 explained.

Analysts' Perspectives

Analysts have responded positively to Meta's earnings report and AI strategy. RBC analyst Brad Erickson highlighted Meta's strong performance and justified elevated capital expenditures.

Debra Aho Williamson, founder and chief analyst of Sonata Insights, noted Meta's advantage due to its established revenue from digital advertising, differentiating it from other tech firms with AI ambitions.

Stock Market Impact

Meta's earnings report concludes a challenging July for the company's stock. Despite a recent decline, Meta remains a key player among the Magnificent Seven stocks. Prior to the earnings report, Meta's stock had fallen 6% since June 30 and was down over 12% from its peak on July 5.

Meta's stock performance was also impacted by Google's lower-than-expected ad revenue for YouTube and a broader rotation away from big tech stocks. Despite these challenges, Meta's stock holds a strong position, with an IBD Composite Rating of 85 out of 99, indicating solid performance metrics and technical strength.