On Wednesday, Meta Platforms reported a significant surge in quarterly digital advertising revenue. However, the company’s heavy investments in artificial intelligence and the metaverse have put pressure on its profits.
Meta’s expenses have climbed due to its full-scale effort to leverage the AI boom dominating the tech industry. The company raised its minimum spending forecast for 2024 and saw capital expenditures increase by around 33%. In April, Meta announced that costs could rise by up to $10 billion to fund infrastructure investments necessary for its AI initiatives.
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“Meta AI is poised to become the most widely used AI assistant globally by the end of the year,” stated CEO Mark Zuckerberg.
Last week, Meta launched its latest large language model, Llama 3.1, and expanded Meta AI’s availability to more languages and markets. According to Zuckerberg, training Llama 4 will likely demand nearly ten times the computing resources used for Llama 3, with future models requiring even more substantial investments.
Zuckerberg expressed his preference for proactive planning, stating, “I’d rather invest in building capacity now, even before it’s necessary, than risk falling behind due to the lengthy lead times required for new AI inference projects.”
Shares climbed by approximately 5% in after-hours trading, indicating that investors were more encouraged by the improved sales forecasts and profits than worried about the rising expenses.
Meta’s competitors faced a different response. Microsoft and Google’s parent company, Alphabet, experienced a decline in their share prices as they reported increasing AI-related expenses.
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Last week, Alphabet disclosed a substantial rise in capital expenditures, reaching $13.2 billion for the second quarter—a jump of 91.4% from the previous year. Meanwhile, Microsoft announced on Tuesday that its capital spending had surged to $19 billion for the same period, up nearly 77.6% from $10.7 billion a year ago.
Over the past year, Meta’s stock has surged nearly 50%, driven by significant advancements in artificial intelligence that have enhanced its ad-targeting precision. These AI breakthroughs have enabled Meta to recover from the setbacks caused by Apple’s 2021 privacy changes, which had wiped out $10 billion in revenue for the company in 2022.
Meta’s sales reached $39.1 billion, marking a 22% increase from the previous year. This growth was slightly slower than the 27% increase reported for the January-to-March period. Advertising continued to be the major driver, accounting for 98% of Meta’s revenue in the second quarter.
Meta projects its third-quarter revenue to fall between $38.5 billion and $41 billion, which exceeds the analyst forecast of $38.3 billion, according to FactSet.
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Meta’s Reality Labs unit, responsible for the Quest headset and Ray-Ban Meta smart glasses, is anticipated to see its operating losses grow substantially for the rest of 2024 as the company invests heavily in both software and hardware development. Zuckerberg has consistently promoted the idea of a “metaverse,” a digital realm where people might eventually work and interact. Recently, Reality Labs posted an operating loss of $4.5 billion.
Meta has updated its forecast for 2024 capital expenditures, increasing the minimum estimate from $35 billion to at least $37 billion while keeping the upper limit at $40 billion. For the recent quarter, capital expenditures totaled $8.47 billion, reflecting a nearly 33.4% rise compared to the same period last year.
For the second quarter, Meta achieved a net profit of $13.5 billion, a significant rise of 73.1% from the same time last year.
Additionally, the company saw its user base expand to more than 3.27 billion daily active users across its suite of apps, such as Facebook, Instagram, Messenger, and WhatsApp.
Mark Zuckerberg announced that Threads, Meta’s micro-blogging platform that rivals Elon Musk’s X, is on track to reach 200 million monthly active users, an increase from 150 million in April.
“We’re making solid strides toward creating another significant social media app,” Zuckerberg noted.
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