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Meta earnings updates: Wall Street sees AI tailwinds building [Business Insider]

Meta Platforms reported its latest quarterly earnings after the closing bell yesterday, and the numbers sent a clear signal to Wall Street: the company’s aggressive bet on artificial intelligence is starting to pay off in ways that go beyond the hype. Revenue came in at $40.1 billion for the quarter, a 22% jump from the same period last year, beating analyst expectations by a comfortable margin. The real story, however, isn’t just about the top line. It’s about how AI is quietly reshaping Meta’s core business—advertising—while also opening up new long-term growth avenues that investors are only beginning to price in.

AI tailwinds in advertising: the hidden engine

The most immediate impact of Meta’s AI investments is visible in its advertising business, which accounts for nearly 98% of total revenue. Meta’s machine learning systems, particularly its “Andromeda” ad ranking model and its upgraded recommendation algorithms, are delivering measurable improvements in ad targeting and conversion rates. CFO Susan Li noted on the earnings call that these AI tools have driven a 12% increase in average ad prices year-over-year, while the number of ad impressions served grew by 9%. That’s a sweet spot for Meta: higher prices without sacrificing volume. Advertisers are seeing better returns on their spend, which means they’re willing to pay more. This virtuous cycle is exactly what Wall Street wanted to see after Meta’s heavy spending on AI infrastructure over the past two years.

But the AI tailwinds aren’t just about better math. They’re also about user experience. Meta has been rolling out AI-powered features across Facebook and Instagram that keep people scrolling longer—think smarter Reels recommendations, automated content discovery, and personalized feed algorithms that learn from real-time behavior. Daily active users across the family of apps reached 3.27 billion, up 7% from last year. More time spent means more ad inventory, and more targeted inventory yields higher prices. It’s a flywheel that’s spinning faster than ever, and the earnings report shows it.

Infrastructure spending: the long view

Of course, none of this comes cheap. Meta’s capital expenditures for the quarter hit $8.5 billion, up 45% from a year ago, driven largely by data center builds, GPU purchases, and AI research costs. That number is expected to keep climbing, with the company guiding for full-year capex in the range of $37 billion to $40 billion. Some analysts have raised eyebrows at the scale of this spending, especially given that Meta is still recovering from a brutal 2022 when its stock lost more than 60% of its value. But CEO Mark Zuckerberg was unapologetic on the call, framing the spending as a necessary investment in the next decade of computing.

“We’re building the infrastructure that will power the next generation of AI services,” Zuckerberg said. “The risk of under-investing is far greater than the risk of over-investing right now.” Wall Street seems to agree, at least for the moment. The stock was up 5% in after-hours trading following the earnings release, suggesting that investors are giving Meta the benefit of the doubt. The key question, however, is when these massive capital outlays will start generating direct revenue—not just indirect benefits like better ads. That’s where Meta’s generative AI push comes in.

Generative AI: from experiments to products

Meta has been quieter than rivals like Microsoft and Alphabet about its generative AI ambitions, but the earnings call revealed a more concrete product roadmap. The company is rolling out an AI-powered chatbot across WhatsApp, Messenger, and Instagram that can generate images, answer questions, and even help businesses automate customer service. Early tests show that these chatbots are driving higher engagement, especially among younger users. More importantly, Meta is testing AI-generated ad creatives—allowing small businesses to automatically generate product images, copy, and video ads with minimal input. If this scales, it could dramatically lower the barrier to entry for advertisers, expanding Meta’s total addressable market.

The company is also betting on open-source AI models. Its Llama 3 model, released earlier this year, has been downloaded millions of times by developers, and Meta is positioning itself as the infrastructure provider for a wave of third-party AI applications. While this doesn’t generate direct revenue today, it builds a moat. Developers who build on Llama are more likely to use Meta’s cloud services and eventually advertise on its platforms. It’s a strategy that echoes how Facebook’s early platform play created a massive ecosystem around social apps.

Reality Labs: still a drag, but narrowing

Meta’s augmented and virtual reality division, Reality Labs, reported $347 million in revenue against an operating loss of $4.5 billion. That’s a lot of red ink, but the loss was actually slightly narrower than the $4.6 billion loss in the same quarter last year. The Quest 3 headset is selling reasonably well, and the Ray-Ban Meta smart glasses are gaining traction as a practical, everyday wearable. Zuckerberg reiterated his long-term thesis that AR glasses will eventually replace smartphones, but he acknowledged that the timeline is measured in years, not quarters. For now, Wall Street is willing to tolerate these losses because the rest of the business is generating so much cash—$15.2 billion in free cash flow this quarter alone.

The bottom line

Meta’s earnings update paints a picture of a company that has successfully pivoted from a growth-at-all-costs mentality to a focus on efficiency and AI-driven profitability. The advertising business is firing on all cylinders, the AI infrastructure buildout is accelerating, and the company is quietly building a generative AI product suite that could unlock new revenue streams. Risks remain—regulatory pressure in Europe, competition from TikTok, and the uncertainty of the Reality Labs bet—but for now, Wall Street sees the AI tailwinds building. The question is how long the market will keep its patience as Meta continues to spend billions in pursuit of a future that hasn’t fully arrived.

Ahmed Abed – News journalist

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