Meta Platforms is impressing with its financial performance, with revenue forecasts for the third quarter well ahead of analysts’ expectations. The driving force behind the growth is artificial intelligence, which is improving the company’s core advertising business. However, market optimism is being mitigated by the scale of spending that Meta is incurring as part of the technological arms race.
The company is forecasting third quarter revenues of between $47.5 billion and $50.5 billion, while the market was expecting around $46.2 billion. The positive results are a direct result of AI implementations in advertising mechanisms. The company reported that in the second quarter, AI-based recommendations increased conversions by around 5% on Instagram and 3% on Facebook. In addition, Meta is introducing new tools such as Advantage+, which allows marketers to automatically generate video ads from static images.
However, this success comes at a price. Meta’s management has signalled that investment in AI will only increase. The company has raised the lower end of its annual capital expenditure (capex) forecasts by $2 billion, to a range of $66-72 billion. Mark Zuckerberg has made no secret of the fact that the long-term goal is to achieve ‘super-intelligence’, which requires building a massive infrastructure and aggressively sourcing talent from the market, often with salary packages in excess of $100 million.
Meta’s spending is part of a wider trend. By comparison, Microsoft is signalling an annual AI investment of around $120 billion and Alphabet (Google) plans to spend around $85 billion this year.
Although short-term returns on AI investments are evident, Meta’s strategy is fraught with risk. The company faces regulatory challenges, including antitrust proceedings in the US that could lead to a restructuring order. Investors seem to be backing Zuckerberg’s vision for now, but rising costs and regulatory uncertainty mean that the giant’s future remains under close scrutiny.
