Quarterly Outlook
Equity outlook: The high cost of global fragmentation for US portfolios
Charu Chanana
Chief Investment Strategist
Global Head of Investment Strategy
In a climate marked by escalating trade tensions and global uncertainty, Meta's latest earnings arrive as a beacon of optimism. The tech giant, parent company of Facebook, Instagram, and WhatsApp, delivered robust first-quarter results, reaffirming its resilience and ambition to lead in artificial intelligence despite external pressures.
Meta's revenue surged 16% year-over-year, reaching USD 42.31 billion, clearly beating analyst expectations of USD 41.34 billion. Even more impressively, profits jumped 35%, hitting USD 16.64 billion, resulting in earnings per share (EPS) of USD 6.43—far surpassing market forecasts of USD 5.23.
Shares immediately responded positively, climbing more than 5% in after-hours trading as investors welcomed the reassurance provided by Meta's numbers.
CEO Mark Zuckerberg confidently told investors: “We're well-positioned to navigate the macroeconomic uncertainty.”
This isn’t merely reassurance—it’s a powerful statement that Meta believes its underlying business model can weather storms better than most.
The resilience of Meta’s advertising business was particularly striking, given investor fears about the Trump administration’s tariff policy and potential disruptions to global economic activity. Instead, ad revenues grew strongly across all key regions, with North American markets up 18% year-over-year, while the average ad price soared by 10%, more than doubling market expectations.
For Meta, advertising isn't just holding steady—it's thriving. Think of it as Meta's sturdy foundation, allowing the company to confidently invest in its future even amid turbulent times.
Perhaps the boldest narrative emerging from Meta’s earnings call was the company’s deepening commitment to artificial intelligence. Zuckerberg reiterated his ambition for Meta to become “the AI leader,” boosting annual capital spending guidance to between USD 64 billion and USD 72 billion—an increase intended primarily to build out infrastructure, such as expansive data centres to support Meta’s ambitious AI goal.
This isn't just spending for spending’s sake; Zuckerberg clearly outlined where Meta expects these investments to yield returns:
"Improved advertising, more engaging experiences, business messaging, Meta AI, and AI devices. Even with significant investments, we don't need to succeed in all areas to achieve a strong ROI," he assured investor.
The scale of these investments is daunting—but Meta sees them as strategic necessities to maintain its competitive edge against AI heavyweights such as Alphabet’s Google, OpenAI, and Microsoft.
However, it’s not all smooth sailing. Reality Labs, Meta’s ambitious but loss-making metaverse division, continues to weigh heavily on profits. This quarter, losses widened to USD 4.21 billion on minimal revenue of just USD 412 million. Investors are rightly asking when this division will move from a costly experiment to a profitable enterprise.
Adding complexity to the horizon, Meta faces significant regulatory challenges in Europe under the Digital Markets Act. Management acknowledged the potential for these changes to materially impact the user experience and advertising effectiveness starting as early as Q3. While the company intends to appeal, this remains a significant risk factor investors should closely monitor.
Looking ahead, Meta’s second-quarter revenue guidance of between USD 42.5 billion and USD 45.5 billion comfortably exceeds current analyst expectations. Importantly, management also slightly lowered their full-year expense outlook, highlighting a focus on cost discipline even amid massive strategic investments.
Zuckerberg summarized the dynamic succinctly, saying: “The pace of progress and the opportunities ahead of us in AI are staggering.” Meta clearly believes the rewards justify the risks.
Meta’s impressive quarterly results serve as a powerful reminder of its unique ability to combine immediate financial resilience with ambitious long-term vision. Investors face an intriguing dilemma: Can Meta sustain such bold investments and manage risks effectively?
As Meta doubles down on its aspiration to be an AI leader, investors will soon discover whether this bold strategy is genuinely visionary—or overly ambitious. One thing is certain: Meta isn’t just responding to the future; it’s intent on shaping it.