Buy META as Solid Q2 Reduces Concerns on Monetization of AI Spending

Global social media behemoth Meta Platforms Inc. META reported second-quarter 2025 adjusted earnings of $7.14 per share, beating the Zacks Consensus Estimate by 22.5%. The figure surged 38.4% year over year. Revenues of $47.52 billion outpaced the Zacks Consensus Estimate by 6% and increased 21.6% year over year.

META is benefiting from steady user growth across all regions. Increased engagement with its offerings like Instagram, WhatsApp, Messenger and Facebook has been a major growth driver. META’s artificial intelligence (AI)-driven platform is enhancing ad delivery efficiency and increasing return on ad spend for advertisers. 

Reducing Concerns on Monetization of AI Spending

Meta Platforms’ strong second-quarter results were mostly attributed to its AI-powered advertising platform, offering smarter ad recommendations and campaign automation. Currently, over 4 million advertisers use the AI-powered Advantage+ campaigns, achieving a 22% improvement in returns.

Second-quarter advertising revenues were $46.56 billion, jumped 21.5% year over year, beating the Zacks Consensus Estimate of $43.94 billion. Building on this success, Meta Platforms plans to enable brands to fully create and target ads using AI by the end of 2026

Powered by NVIDIA Corp. NVDA GPUs, META’s mostly free Llama 3 AI model enables an API provider to generate $7 in revenues on an investment of $1 over the next four years. CEO Mark Zuckerberg said an expanded AI-powered recommendation model for ads boosted conversions by 5% on Instagram and 3% on Facebook. Improved content recommendations boosted time spent on Instagram by 6% and Facebook by 5%. 

As of June 30, META’s family daily active people (DAP) — using at least one of Facebook, WhatsApp, Instagram or Messenger — reached 3.48 billion, up 6% year-over-year, beating the Zacks Consensus Estimate of 3.45 billion.  

Meta Platforms is diversifying into AI-powered wearable technology. It already offers Ray-Ban Meta smart glasses and recently introduced Oakley Meta glasses. The company is developing standalone AI glasses opening up new avenues for AI-driven revenues.

Strong Estimate Revisions for META Stock

For third quarter 2025, META expects total revenues between $47.5 billion and $50.5 billion. Its mid-point of $49 billion, is well above the current Zacks Consensus Estimate of $46.32 billion. The Zacks Consensus Estimate for earnings currently pegged at $5.98 per share.

For 2025, the Zacks Consensus Estimate currently shows revenues of $187.78 billion, suggesting an improvement of 14.2% year over year and earnings per share of $25.71, indicating an increase of 7.8% year over year. The Zacks Consensus Estimate for current year earnings has improved 1.6% over the last 30 days.

For 2026, the Zacks Consensus Estimate currently shows revenues of $212.82 billion, suggesting an improvement of 13.3% year over year and earnings per share of $28.30, indicating an increase of 10.1% year over year. The Zacks Consensus Estimate for next-year earnings has improved 2.3% over the last 30 days.

AI Expenditure to Grow Further

META raised its 2025 capital expenditure guidance to $66-$72 billion, from the prior outlook of $64-$72 billion. This increase reflects the company’s aggressive investments in AI infrastructure and technical talent. Zuckerberg said that the growth rate of the AI-related expenditure will increase further in 2026. 

Meta Platforms is developing several multi-gigawatt data centers. Its flagship Hyperion facility will eventually scale up to support gigawatts of capacity. In June, META signed a 20-year energy deal with Constellation Energy Corp. CEG to supply 1.1 gigawatts of nuclear power to its growing AI data centers in Illinois. Beginning in 2027, this agreement will ensure a steady supply of clean energy.

Attractive Valuation of META Shares

Meta Platforms currently carries a forward P/E of 27.04X for the current financial year, compared with 28.48X of the industry and 19.59X of the S&P 500. META has a return on equity of 40.31% compared with 0.77% of the industry and 17.17% of the S&P 500 Index. META currently has a long-term (3-5 years) EPS growth rate of 16.3%, well above the S&P 500’s long-term EPS growth rate of 12.6%.

Investment Thesis

META currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Meta Platforms is witnessing an impressive rally in 2025. Year to date, the stock price of META has jumped 31.9% compared with the 8% gain of the S&P 500 and 9.6% of the Nasdaq Composite.

Meta Platforms has a strong balance sheet and generates significant cash flow, which makes it an attractive stock for investors. As of June 30, 2025, cash & cash equivalents and marketable securities were $47.07 billion and long-term debt was $28.83 billion.

Meta Platforms continues to invest in developing its platform and products. We believe that its ability to generate strong cash flows will help it to make further investments in product development and acquisitions in the future. This will add further momentum to META’s shares in the near future.

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This article originally published on Zacks Investment Research (zacks.com).

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