Mark Zuckerberg believes Meta’s AI tool will be the ‘most used’ in the world

Meta, the parent company of Facebook, is set to see a significant rise in expenses next year due to its investments in artificial intelligence. However, the company’s robust performance in its advertising sector has reassured investors, demonstrating that Meta’s core business remains strong.

In its second-quarter report, Meta exceeded expectations, which led to a substantial increase in share prices during after-hours trading. While the exact amount earmarked for AI investments next year wasn’t disclosed, the company indicated that it would be substantial.

Despite the potential for increased expenses to unsettle investors, analysts believe Meta’s latest financial results show it can handle the additional costs for now.

According to Debra Aho Williamson, founder and chief analyst at Sonata Insights, the positive market response to Meta’s earnings report serves as a good indicator for AI stocks.

She noted that strong performance in a company’s core business can make AI investments appear more favourable. Conversely, if a core business shows weaknesses, as seen recently with Alphabet’s YouTube, the stock might be perceived as riskier.

Williamson highlighted that Meta stands out among tech companies with AI ambitions because it already generates substantial advertising revenue, unlike others that are trying to establish new business models.

Furthermore, while Google is dealing with changes that affect its core ad business, Meta’s AI investments are primarily focused on enhancing advertising efficiency and developing new features that could eventually become revenue generators.

Meta, based in Menlo Park, California, reported earnings of $13.47 billion, or $5.16 per share, for the April-June period, up 73 per cent from $7.8 billion, or $2.98 per share, a year earlier. Revenue increased by 22 per cent to $39.07 billion from $32 billion. Analysts had anticipated earnings of $4.72 per share on revenue of $38.26 billion, according to FactSet.

CEO Mark Zuckerberg expressed optimism about the company’s future, stating that strong quarterly results position Meta to invest in future growth. He also mentioned that Meta AI is on track to become the most widely used AI assistant globally by the end of the year.

Meta reported that the number of daily active users for its suite of apps — Facebook, Instagram, WhatsApp, and Messenger — reached 3.27 billion in June, a 7 per cent increase from the previous year. Although the company no longer provides individual user figures for Facebook, it revealed that WhatsApp now has over 100 million monthly users in the US, and Threads, Meta’s competitor to X, is nearing 200 million monthly users.

For the third quarter, Meta anticipates revenue between $38.5 billion and $41 billion, with analysts expecting around $39.1 billion. Meta expects infrastructure costs to drive expense growth significantly next year as it continues to invest heavily in AI capacity, including data centres.

Thomas Monteiro, senior analyst at Investing.com, remarked that Meta is well-positioned to outpace its competitors in both AI and advertising. He credited the company’s ability to maintain over 20 per cent quarterly growth more efficiently than peers like Alphabet and Microsoft, who face challenges in sustaining double-digit revenue growth while managing declining margins.

Monteiro also pointed out that Meta’s strategy of targeting younger users outside the US is yielding positive results. However, he noted that the overall performance could have been even stronger if not for the revenue drag from its Reality Labs segment.