Meta’s advertising growth is proof that hefty AI spending is already paying off

For
investors
who
are
skeptical
of


Meta’s
massive
spending
on
artificial
intelligence
and
whether
it
will
pay
off
anytime
soon,
CEO

Mark
Zuckerberg
is
urging
them
to
look
to
the
present.

After
the
company’s
better-than-expected

second-quarter
earnings
report
on
Wednesday,
Zuckerberg
and
finance
chief
Susan
Li
rattled
off
all
the
ways
that
AI
has
helped
the
company
grow
faster
than
the
competition
in
the
digital
advertising
market,
Meta’s
core
business.

“The
ways
that
it’s
improving
recommendations
and
helping
people
find
better
content,
as
well
as
making
the
advertising
experiences
more
effective,
I
think
there’s
a
lot
of
upside
there,”
Zuckerberg
said
on
the
earnings
call.
“Those
are
already
products
that
are
at
scale.
The
AI
work
that
we’re
doing
is
going
to
improve
that.”

Meta
reported
revenue
growth
of
22%
from
a
year
earlier
to
$39.07
billion,
with
98%
of
its
sales
coming
from
advertising,
primarily
on
Facebook
and
Instagram.
Its
growth
rate
was
double
that
of
Google’s
ad
business,
which
saw
sales
increase
11%
to
$64.6
billion,


Alphabet
said
in
its

earnings
report
last
week.

Meanwhile,


Pinterest
and


Spotify,
which
are
both
significantly
smaller
than
Meta,
reported
revenue
growth
of
21%
and
20%,
respectively,
in
their
latest
reports.

As
in
previous
quarters,
Li
said
Meta’s
advertising
business
benefited
from
online
commerce,
gaming
and
the
media
and
entertainment
sectors,
and
that
ad
growth
continued
to
be

strongest
in
the
Asia-Pacific
region.
She
said
the
company’s
“improved
ad
performance”
helped
lift
overall
ad
prices
despite
slowing
growth
in
that
region.

Zuckerberg
pointed
to
AI
as
the
foundation
behind
Meta’s
refreshed
online
advertising
platform,
which
was

battered
after


Apple
introduced
an
iOS
privacy
update
in
2021
that
made
it
harder
for
social
media
companies
to
target
users
across
the
Internet.

“They
rebuilt
their
ad
tech
stack
using
AI
and
they
changed
their
user
interface
and
generated
a
lot
more
user
engagement
because
of
AI,”
said
Mark
Mahaney,
internet
analyst
at
Evercore
ISI,
in
an

interview
on
CNBC’s
“Closing
Bell:
Overtime”
on
Wednesday.
“It’s
showing
up
in
the
revenue
and
the
profits
now,”
said
Mahaney,
who
recommends
buying
Meta
shares.

Meta
shares
popped
7%
in
extended
trading
after
Wednesday’s
earnings
report,
which
included
an
uplifting
forecast
for
the
current
quarter.

Like
the
other
mega-cap
tech
companies,
Meta
is
spending
billions
of
dollars
on


Nvidia’s
graphics
processing
units
(GPUs),
which
are
needed
to
train
AI
models
and
run
hefty
workloads.
Some
industry
experts
have
questioned
the
outlays
because
so
much
of
the
investment
is
tied
to
expectations
that
generative
AI
—
popularized
by
OpenAI’s
ChatGPT
—
will
lead
to
big
revenue
gains
in
the
future.

Meta
is
showing
that,
while
the
bet
is
on
major
growth
down
the
road,
the
company
is
reaping
rewards
today.

“You’ve
already
seen
a
return
with
Meta
over
the
last
two
years,”
Mahaney
said.

Angelo
Zino,
an
analyst
at
CFRA
Research,
agreed
with
Mahaney,
telling
CNBC
that
Meta
has
“really
navigated
some
of
the
concerns
and
the
storms”
from
a
couple
years
ago
and
is
“clearly
integrating
AI
across
their
ecosystem
extremely
nicely.”

Zino
noted
that
Meta’s
growth
rates
are
“nicely
outpacing
those
of
its
peers.”

Meta
isn’t
finished
spending
big
money
on
AI
and
the
far-flung
metaverse,
which
continues
to

lose
billions
of
dollars
each
quarter.
Li
said
that
Meta
expects
“significant
CapEx
growth
in
2025
as
we
invest
to
support
our
AI
research
and
our
product
development
efforts.”

For
2024,
Meta
said
it
now
expects
capital
expenditures
in
the
range
of
$37
billion
to
$40
billion,
lifting
the
low
end
of
that
range,
which
had
been
$35
billion.

Li
says
investors
should
think
of
Meta’s
AI
strategy
as
a
two-pronged
approach,
with
“core
AI”
helping
Meta
improve
its
advertising
platform
and
recommendation
system,
thus
leading
to
more
user
engagement
and
ad
performance
that
“have
translated
into
revenue
gains.”

Generative
AI
is
a
longer-term
bet.
Li
said
that
the
company
doesn’t
“expect
our
Gen
AI
products
to
be
a
meaningful
driver
of
revenue
in
’24,
but
we
do
expect
that
they’re
going
to
open
up
new
revenue
opportunities
over
time
that
will
enable
us
to
generate
a
solid
return
off
of
our
investment.”

WATCH:

Meta
moving
away
from
Metaverse
Quest