Meta's advertising revenue surged thanks to AI, and its stock recovered impressively.
Meta Platforms forecasts third-quarter revenue that far exceeds analysts' expectations, thanks to the boost from artificial intelligence (AI) in its advertising business; Meta's stock rose 11%.
Meta Platforms (META.O) has just announced its third-quarter revenue forecast, predicting it will reach between $47.5 billion and $50.5 billion, significantly higher than the average estimate of $46.15 billion from LSEG analysts.
These positive business results may help alleviate investor concerns about the social media giant's aggressive spending pace, at least for the time being.
The company is working to change the perception that it is lagging behind rivals like Microsoft (MSFT.O) and Alphabet's (GOOGL.O) Google in the AI race.
AI drives advertising revenue.
Meta has raised its annual capital expenditure forecast by $2 billion, to approximately $66 billion to $72 billion. CEO Mark Zuckerberg said AI is delivering massive leaps forward in the advertising business on Facebook and Instagram.
Meta also stated that rising costs for building data center infrastructure and employee salaries will push cost growth in 2026 past the rate of 2025. The company also plans for higher capital expenditures next year.
Investors have largely supported Zuckerberg's pursuit of superintelligence, the hypothetical concept of AI surpassing human intelligence in every possible way, driving the company's stock up nearly a fifth year-to-date.
The company spent $14.3 billion to acquire shares in Scale AI and hired CEO Alexandr Wang. Meta spent over $100 million to attract AI talent from competitors.
Outstanding revenue and legal challenges
Meta is facing an antitrust lawsuit in the US, being required to restructure or sell Instagram and WhatsApp for allegedly monopolizing the social media market. Court documents are due in September, with a ruling expected as early as the end of this year. CEO Mark Zuckerberg admitted the company was slow to react to the threat from TikTok.
For the second quarter ending June 30, Meta reported revenue of $47.52 billion, exceeding estimates of $44.80 billion. Earnings per share reached $7.14, higher than forecasts of $5.92. Fourth-quarter revenue growth is expected to be slower than third-quarter growth, with a 1% benefit from a weaker US dollar.
Minda Smiley, senior analyst at Emarketer, commented: "Meta's AI-driven investments in its advertising business continue to yield returns... But Meta's excessive spending on AI insights will continue to raise questions and draw scrutiny from investors hoping to see returns."
She also noted that the company's revenue "comes against the backdrop of legal challenges Meta faces in the U.S. and abroad, adding to the uncertainty surrounding its future."
In April, Zuckerberg testified that the company was initially slow to recognize the competitive threat from TikTok, and that Meta had tried to build multiple apps but without success.
CEO Zuckerberg has pledged to invest heavily in AI, aiming for superintelligence that surpasses human intelligence. Despite the poor reception of the Llama 4 model, Meta continues to push its AI strategy, competing with Microsoft (which has spent $120 billion on AI) and Alphabet (which has spent $85 billion).
