Meta shares jump as AI fuels ad sales, outweighing big capital costs
The bumper results could ease investor worries about the social media giant's frenzied pace of spending, at least for now, as it seeks to change Wall Street's impression that it lags rivals including Microsoft (MSFT.O), opens new tab and Alphabet's (GOOGL.O), opens new tab Google in the AI race.
Meta raised the bottom end of its annual capital expenditures forecast by $2 billion, to a range of between $66 billion and $72 billion, as CEO Mark Zuckerberg told analysts on a call that AI was making big leaps possible in its business that makes money by selling ads on Facebook and Instagram.
Rising costs to build out data center infrastructure and employee compensation costs - Meta has been poaching researchers with mega salaries - would push the 2026 expense growth rate above the pace in 2025, Meta said. The company is planning higher capital expenses next year as well.
"I think there are all these questions that people have about what are going to be the timelines to get to really strong AI or superintelligence ... we've observed the more aggressive assumptions, or the fastest assumptions, have been the ones that have most accurately predicted what would happen. I think that that just continued to happen over the course of this year too," Zuckerberg said on a conference call with analysts.
Investors have largely backed Zuckerberg's pursuit of superintelligence - a hypothetical concept where AI surpasses human intelligence in every possible way - pushing the company's stock up nearly a fifth so far this year.
Meta's post-market stock gains on Wednesday, along with those of Microsoft's (MSFT.O), opens new tab, added a combined half a trillion dollars in stock market value.
Microsoft said on Wednesday it expects capital expenditure to exceed $30 billion in its fiscal first quarter, far above analysts' estimate of $23.75 billion. At that pace, the company would spend roughly $120 billion on AI this fiscal year.
The update came a week after Google parent Alphabet raised its capital spending plans for the year to about $85 billion and signaled more to come next year to meet surging demand for AI services.
For the third quarter, Meta said it expected total revenue of $47.5 billion to $50.5 billion, compared with analysts' average estimate of $46.15 billion, according to data compiled by LSEG. Its third-quarter guidance assumed a 1% benefit from a weak dollar. It said year-over-year revenue growth in the fourth quarter would be slower than in the third quarter.
"AI-driven investments into Meta's advertising business continue to pay off ... But Meta's exorbitant spending on its AI visions will continue to draw questions and scrutiny from investors who are eager to see returns," Emarketer senior analyst Minda Smiley said.
She noted that the company's earnings "come against a backdrop of regulatory challenges that Meta faces in the U.S. and abroad, adding more uncertainty to its future."
U.S. antitrust regulators have sued Meta to force it to restructure or sell Instagram and WhatsApp, claiming the company sought to monopolize the market for social media platforms used to share updates with friends and family. With court papers due in September, the judge overseeing the case is unlikely to rule until later this year at the earliest.
Zuckerberg testified in April that the company was initially slow to recognize the competitive threat of TikTok, and that Meta has over the years tried to build many apps that never gained traction.
The founder-CEO has pledged to spend hundreds of billions of dollars to build massive AI data centers, having shelled out $14.3 billion for a stake in startup Scale AI and poached its 28-year-old billionaire CEO, Alexandr Wang.
After a lackluster reception for its Llama 4 model that led to staff departures, Meta has tried to revitalize its AI push by sparking a high-stakes talent war in which it has doled out more than $100 million in pay packages to researchers from rival firms.
'We're just going to push very aggressively on all of that,' Zuckerberg said on the conference call, referring to Meta's AI strategy.
In the second quarter, AI-powered ad recommendations drove about 5% more conversions on Instagram and 3% on Facebook, the company said. Ad conversions refer to a user making a purchase or a commitment after clicking or viewing an ad.
The tech giant recently introduced an AI-driven image-to-video ad creation tool under its Advantage+ suite, allowing marketers to generate video ads from static images.
Meta reported revenue of $47.52 billion for the quarter ended June 30, which surpassed analysts' average estimate of $44.80 billion. Profit per share of $7.14 for the second quarter also exceeded estimates of $5.92.
Instagram, whose Reels product competes with ByteDance's TikTok and YouTube Shorts for ad dollars in the popular short video format, is set to account for more than half of Meta's ad revenue in the U.S. this year, according to eMarketer.
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The Independent
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Airlines are now adopting personalized pricing. Here's how to avoid it
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The shift from cash to electronic payments has enabled businesses to collect what's been called a 'gold mine' of information. For example, Mastercard says its data lets companies 'determine optimal pricing strategies.' So much information is collected when you pay electronically that in 2024, the Federal Trade Commission issued civil subpoenas to Mastercard, JPMorgan Chase and other financial companies demanding to know 'how artificial intelligence and other technological tools may allow companies to vary prices using data they collect about individual consumers' finances and shopping habits.' Experiments at the FTC show that AI programs can even collude among themselves to raise prices without human intervention. To prevent customized pricing, some states have laws requiring retailers to display a single price for each product for sale. Even with these laws, it's simple to do custom pricing by using targeted digital coupons, which vary each shopper's discount. How you can outsmart AI pricing There are ways to get around customized pricing. It all depends on denying AI programs data on past purchases and knowledge of who you are. First, when shopping in brick-and-mortar stores, use paper money. Yes, good old-fashioned cash is private and leaves no data trail that follows you online. Second, once online, clear your cache. Your search history and cookies provide algorithms with extensive amounts of information. Many articles say the protective power of clearing your cache is an urban myth. However, this information was based on how airlines used to price tickets. Recent analysis by the FTC shows that the newest AI algorithms are changing prices based on this cached information. Third, many computer pricing algorithms look at your location, since location is a good proxy for income. I was once in Botswana and needed to buy a plane ticket. The price on my computer was about $200. Unfortunately, before booking, I was called away to dinner. After dinner, my computer showed the cost was $1,000 − five times higher. It turned out that after dinner, I used my university's VPN, which told the airline I was located in a rich American neighborhood. Before dinner, I was located in a poor African town. Shutting off the VPN reduced the price. Last, often to get a better price in face-to-face negotiations, you need to walk away. To do this online, put something in your basket and then wait before hitting purchase. I recently bought eyeglasses online. As a cash payer, I didn't have my credit card handy. It took five minutes to find it, and the delay caused the site to offer a large discount to complete the purchase. The computer revolution has created the ability to create custom products cheaply. The cashless society, combined with AI, is setting us up for customized prices. In a custom-pricing situation, seeing a high price doesn't mean something is higher quality. Instead, a high price simply means a business views the customer as willing to part with more money. Using cash more often can help defeat custom pricing. In my view, however, rapid advances in AI mean we need to start talking now about how prices are determined, before customized pricing takes over completely.
