Meta Platforms (NASDAQ:META) defied expectations in a quarter where uncertainty and potential tariffs' impacts had many concerned about a digital advertising slowdown. Thankfully, results defied expectations, and did so in a way that caused enthusiasm to spike for the rest of the market too.
The stock popped and was up 9.6% at one point before tapering off, but it still ended the day up 4.2%. Other tech companies have also posted stellar earnings this week, and there could be solid upside ahead if this performance continues.
Meta has raised its CapEx outlook for 2025 to be between $64 billion and $72 billion, which is up from a previous guidance of $60 billion to $65 billion. It’s still not a budget as big as Microsoft’s (NASDAQ:MSFT) $80 billion or Alphabet’s (NASDAQ:GOOG) $75 billion. It’s worth keeping in mind that Meta is less than half the size of Microsoft, so this is an all-in investment from the company.
Meta has lacked a true growth engine ever since its “Family of Apps” segment started maturing. That segment does post solid growth if advertising spending is high, but that’s usually cyclical and is unlikely to help Meta maintain double-digit top-line growth. Zuckerberg tried to drive growth with Meta’s Reality Labs segment, but that was only seen as a waste of all the cash the company’s core business was generating. And I’d agree, since it posted $4.2 billion in losses in Q1 alone.
AI could be taking its place as the cash dump for Meta, and it could be much more rewarding if all that CapEx translates into growth in the long run.
It’s hard to say if Meta’s AI bet will pay off. Unlike other hyperscalers, Meta does not have its own cloud business. It only offers some specialized services with Llama API, but. Comparing Meta’s AI to what other companies have makes it pretty clear Meta is nowhere close.
Microsoft has a large stake in OpenAI, Amazon (NASDAQ:AMZN) has a stake in Anthropic, and Google has gobbled up startups to make very competitive AI models. The investments from Microsoft and Amazon into these private AI companies have at least indirectly paid off due to the surge in their cloud revenue, whereas Meta is still reliant on ads. Its Llama models are inferior to most other flagship AI models.
Meta AI having 1 billion users sounds nice on paper, but Meta AI is embedded within Facebook, Instagram, WhatsApp, and Messenger. Even minimal interaction with AI features would count toward the total. The metrics likely include both intentional AI interactions and automated AI features that work in the background, which users might not even recognize as "AI usage."
If you are bullish about ads and AI, META stock should not be your top bet. I’d instead buy GOOG stock. Google has the best AI model right now, and the company also benefits from an increase in ad spending. If ad spending does slump, it will be less vulnerable as it has a high-margin cloud business that is rapidly growing. GOOG also trades at 18x earnings vs. META’s 22x earnings.
META’s consensus price target of $696.45 implies 21.7% upside.
