Meta’s massive growth in revenue boosts investor confidence in AI, to boost expenditure

Meta’s strong quarterly revenue and earnings growth, coupled with an optimistic forecast, led to an 8 per cent rise in its shares on Wednesday. The impressive performance of its core advertising business alleviated Wall Street’s worries about the company’s substantial investments in artificial intelligence (AI).

In the past three months, Meta’s revenues soared by 22 per cent to $39.1 billion, surpassing analysts’ expectations of $38.3 billion and exceeding the high end of its own forecast of $39 billion. For the third quarter, Meta projected revenues between $38.5 billion and $41 billion, outstripping estimates of a rise to $39.2 billion.

However, Meta also adjusted the lower end of its full-year capital expenditure guidance, raising it from a range of $35 billion to $40 billion to a new range of $37 billion to $40 billion. This increase reflects Meta’s continued commitment to its AI ambitions.

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“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,” stated Mark Zuckerberg, Meta’s chief executive.

Wall Street has been wary of the significant surge in AI spending among Big Tech companies like Microsoft, given the high costs associated with training and maintaining AI models and the investment needed in the supporting infrastructure. Zuckerberg has been working to convince investors of the value of his AI vision, especially as he faces scrutiny over when these new AI features will become profitable and what the associated business models will look like.

In the previous quarterly results in April, Meta raised the high end of its full-year capital expenditure guidance to enhance its AI infrastructure and plans. This announcement caused shares to drop by more than 10 per cent as investors reacted negatively to the increased costs.

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Despite these concerns, Meta’s shares have shown strong performance, rising more than 35 per cent year to date. Following Wednesday’s positive results, shares were up 5 per cent at the time of publication.

The robust revenue growth and optimistic forecast demonstrate Meta’s ability to leverage its core advertising business effectively, even as it invests heavily in AI. This balance has helped to assuage investor fears and has driven share prices upward, reflecting confidence in Meta’s strategic direction and future profitability.