Meta’s blowout quarter: AI payoff fuelling bigger bets

Charu Chanana
Chief Investment Strategist
Key points:
- Strong Q2 beat: Meta posted 22% revenue growth and a 36% jump in profits, powered by AI-enhanced ad targeting and rising engagement across Reels and WhatsApp Business.
- AI strategy evolves: Meta is pivoting from open-source models to a more closed, consumer-first approach with its “personal superintelligence” vision, differentiating itself from enterprise AI rivals.
- Rising capex, rising stakes: With annual AI infrastructure spending projected to hit $105B, Meta’s execution will be under the microscope—especially if economic headwinds slow ad revenue growth.
Meta’s second-quarter results delivered a strong beat across the board, cementing its status as a key AI beneficiary.
But behind the strong numbers lies a critical inflection point: a refinement of Meta’s AI strategy, a sharp increase in capital expenditure, and growing investor enthusiasm. While the momentum is clearly strong, it also brings a new set of risks and expectations that investors will need to watch closely in the quarters ahead.
A quarter of strength, powered by AI
Meta reported $47.5 billion in revenue, up 22% year-on-year, with net income rising 36% to $18.3 billion. Earnings per share surged 38% to $7.14, well ahead of expectations. The company also raised guidance, forecasting Q3 revenue as high as $50.5 billion, reinforcing investor optimism.
Much of this performance was underpinned by a robust recovery in digital advertising. Ad impressions rose 11%, while the average price per ad increased 9%, highlighting advertisers’ willingness to pay up for more precise targeting—much of it enabled by Meta’s expanding use of AI in ad delivery and optimization.
User growth remained solid, with daily active users reaching 3.48 billion, up more than 6% from a year earlier. Time spent on Reels and Instagram video products continues to grow, while WhatsApp Business is quietly gaining traction in emerging markets like Southeast Asia. These developments underscore Meta’s unique strength—not just in building AI capabilities, but in deploying them at scale across its family of apps.
Meta’s AI strategy pivot
Alongside strong results, Meta is signaling a shift in how it thinks about the future of AI.
1. From open to closed: Meta pulls back on open-source AI
After promoting its open-source Llama models, Meta is now signaling a shift towards a more selective approach. CEO Mark Zuckerberg noted the company will be “careful about what we choose to open source,” citing both safety and business model considerations. This move reflects a broader repositioning as Meta steers away from competing head-on in enterprise AI with the likes of OpenAI, Microsoft, and Amazon. Instead, it is doubling down on consumer-focused monetization, leveraging its massive user data ecosystem and product integration.
2. Introducing “Personal Superintelligence”
At the heart of Meta’s new vision is the concept of “personal superintelligence”—an AI assistant designed to empower individuals rather than replace them. This consumer-first approach stands in contrast to rivals focused on automating workflows and targeting enterprise productivity. While details remain limited, the strategy plays to Meta’s core strengths: a massive global user base and the infrastructure to deliver personalized AI experiences at scale.
Crucially, this isn’t just rhetoric. Meta has launched a dedicated Superintelligence team, recruiting top AI talent, including former researchers from OpenAI and Google DeepMind, and is aggressively hiring to build out this vision. Zuckerberg has underscored the company’s unique position to deploy transformative AI technologies “to billions of people,” leveraging Meta’s deep integration across its family of apps.
The ambition is to move far beyond chatbots and recommendation engines—to create AI tools deeply embedded in users’ digital lives, shaping how people interact, work, and communicate every day. Whether that vision translates into measurable returns remains to be seen, but the significant investment in talent and infrastructure makes clear that Meta is all-in.
Capex: from ambition to execution risk?
But if Meta is dreaming big, it is also spending big. The company raised its full-year capex guidance to $66–72 billion, mostly on AI infrastructure like servers and data centers. Analysts now estimate 2026 capex could climb toward $105 billion — nearly triple the levels seen just two years ago when the current AI wave began.
This scale of investment assumes a near-seamless return on AI spend While the early signs are encouraging, history shows that tech transitions rarely follow a straight line. As the Financial Times’ Lex column noted, there’s a risk of falling into the “Field of Dreams” fallacy — building in hopes that monetization will inevitably follow. So far, that bet is paying off. But the leap from $37 billion to $105 billion in annual spend brings heightened execution risk and the margin for error narrows.
Risks on the horizon
Despite the optimism, investors would do well to watch for:
- Rising costs and potential margin pressure: Escalating AI-related investment could stall margin expansion if monetization lags behind infrastructure growth.
- Strategic isolation in AI: Meta’s pivot away from open-source and enterprise markets places all bets on consumer AI. That’s a bold call—and one that hinges on broad adoption and monetization of new tools.
- Persistent drag from Reality Labs: The metaverse unit posted another $4.5 billion in quarterly losses—its fifth consecutive quarter with losses above $4 billion.
- Macroeconomic risks: A global economic slowdown could weigh on digital ad budgets—just as Meta ramps up spending. This would tighten the company’s margin buffer at an inopportune time.
- Valuation risk: With Meta now trading around 28x forward earnings, above its five-year average, any disappointment in execution or outlook could trigger a reassessment.
Bottom line
Meta’s Q2 results confirm that AI is no longer just a strategic narrative—it’s delivering tangible results. The company is executing well on monetization, engagement, and user growth, and its new AI strategy reflects a focused, consumer-centric vision.
Still, with capex soaring and expectations running high, the next chapter will require not just vision—but precision. Investors should stay alert: the transition from $37 billion to $105 billion in AI investment is ambitious, and while Meta is building fast, the payoff will need to keep pace.
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