Meta Platforms: AI Continues to Drive Revenue, but Is the Stock a Buy?

Going into its first-quarter results, there was a worry about how reduced spending from China-based e-commerce exporters, such as Temu and Shein, would impact Meta Platforms (NASDAQ: META). These worries appeared largely justified, as Chinese e-commerce companies accounted for about 11% of its revenue last year, and data from marketing intelligence company Pathmatics showed Temu's spending on Facebook at one point had suddenly dropped from over $1 million a day to nearly zero.

The reduction in ad spending from Chinese e-commerce exporters stems from both the current U.S.-China tariff war as well as the end to the de minimis exemption that allowed goods valued below $800 to enter the U.S. without being subject to tariffs. This de minimis exemption fueled growth for companies like Temu and Shein, which in turn spent heavily on digital advertising within the U.S.

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However, when Meta released its latest results, it reassured investors by offering strong guidance for the year, while noting that a portion of the ad spending from China-based e-commerce exporters has been redirected to other markets.

Meanwhile, artificial intelligence (AI) is helping drive Meta's growth, and the company meaningfully upped its planned investment in data center infrastructure to support its AI ambition.

AI fuels strong results

Meta once again turned in a great quarter that easily topped analyst expectations. Its Q1 revenue jumped 16% year over year, or 19% in constant currencies, to $42.31 billion, while earnings per share (EPS) surged 37% year over year to $6.43. The results blew past analyst expectations, as compiled by LSEG, for revenue of $41.4 billion and EPS of $5.28.

Advertising revenue was also up 16%, coming in at $41.4 billion. Revenue at Reality Labs, which is home to Meta's metaverse efforts and its augmented reality headsets and smart glasses, fell 6% to $412 million. Operating income from its social media apps climbed 23% to $21.8 billion, while Reality Labs recorded a loss of $4.2 billion.

Meta's advertising growth was led by a 5% increase in ad impressions and a 10% jump in average price per ad. This demonstrates that Meta has been able to show more ads to its user base while also being able to charge advertisers a higher price. That's a powerful combination that is largely being driven by its AI investments.

First, AI is helping increase user engagement on its platforms, which is giving it more opportunities to show ads to its users. It said that its AI-powered recommendations have led to people spending 7% more time on Facebook and 6% more time on Instagram.

Second, AI is helping advertisers better find and target audiences that may be interested in their products. AI is also helping advertisers create better ad campaigns, which can lead to improved conversion. As a result, advertisers are more inclined to invest in ads on Meta's social media platforms, increasing ad prices.

Meta also continues to grow its user base. Family daily active people (DAP), a measurement of registered users who log in to one of Meta's apps daily, climbed by 6% year over year to 3.43 billion in March. That was also above analyst expectations for DAP of 3.39 billion.

Meta's newest app, Threads, continues to nicely grow its user base, reaching more than 350 million monthly active users. That's up from 320 million at year-end. The company has just started opening up Threads to advertisers. It expects to introduce ads gradually to the platform and not have it be a meaningful contributor this year.

Meta forecast second-quarter revenue to be between $42.5 billion and $45.5 billion, for growth of 9% to 16% year over year. That compares to the $44 billion Q2 analyst revenue consensus. The forecast reflects what the company has seen with China-based e-commerce advertisers in April. CEO Mark Zuckerberg added that the company is performing well and that it is well positioned to navigate the current economic uncertainty.

The company also significantly increased its full-year capital expenditures to a range of $64 billion to $72 billion, up from a prior forecast of $60 billion to $65 billion. It said this reflects additional data center investments to support its AI efforts, as well as expected higher hardware costs.

Is Meta stock a buy?

During the tech sell-off, Meta was hit hard, and the stock is still down more than 20% from its highs. However, the company has demonstrated this quarter that it is not reliant on advertising from China-based e-commerce exporters, and that artificial intelligence serves as the primary driver for its advertising revenue growth. While the company is not completely immune to a weak macro environment and the current U.S.-China trade war, it is showing that the secular growth stemming from its AI investments can overcome any cyclical weakness.

Meta stock trades at a forward price-to-earnings (P/E) ratio of around 23 times based on 2025 analyst estimates. Given its strong revenue growth, that's an attractive valuation.

As such, I think the stock looks like an attractive long-term buy at current levels.

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool has a disclosure policy.