Meta Earnings: Spending Big on AI

Key Points

• Meta blasted past analyst estimates in the second quarter with strong revenue and earnings growth.

• The advertising business is booming, with rising ad prices and ad impressions.

• Meta is ramping up capital spending and operating expenses as it invests in AI and superintelligence.

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Here's our initial take on Meta Platforms' (NASDAQ: META) fiscal 2025 second-quarter financial report.

Key Metrics

Meta Touts Its "Superintelligence" for the World

Meta Platforms easily beat analyst expectations in the second quarter. Revenue was up 22% year over year to $47.5 billion, and earnings per share soared 38% to $7.14. The number of daily active people across the company's products rose by 6% to 3.48 billion, ad impressions shot up 11%, and average price per ad jumped 9%.

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While Meta's advertising business is churning out record revenue and profits, the company is focused on the heavy investments necessary to make its artificial intelligence (AI) superintelligence push a reality. "I'm excited to build personal superintelligence for everyone in the world," said CEO Mark Zuckerberg in the earnings release.

Meta spent just over $17 billion on capital expenditures during the second quarter, double what it spent in the same period last year. For 2025, the company said it now expects to pour between $64 billion and $72 billion into capex, up $30 billion from 2024. Meta also expects a similar increase in capex in 2026 as the company races to build out AI computing capacity.

Meta grew its total expenses by just 12% in the second quarter, which contributed to the company's rapid earnings growth. Next year, infrastructure costs are expected to push up total expenses significantly, particularly depreciation and employee compensation for AI-related roles. Meta has made headlines recently by reportedly attempting to poach AI experts with massive pay packages.

Even with the heavy capital spending, Meta is still producing copious amounts of free cash flow, although that metric is contracting. Free cash flow was $8.55 billion in the second quarter, down about 22% year over year.

Immediate Market Reaction

Shares of Meta were up around 9% in after-hours trading on Wednesday as investors digested the company's strong results and spending plans. Meta's core advertising business is booming, boosting profits even as the company ramps up spending and investments in its AI initiatives. Going into the second-quarter report, Meta stock was up almost 19% year to date.

What to Watch

Meta expects to generate revenue between $47.5 billion and $50.5 billion in the third quarter, with the year-over-year growth rate then slowing in the fourth quarter. Total expenses are now expected to rise by 20% to 24% in 2025, reflecting the company's growth plans.

Meta is betting big on AI and superintelligence, plowing tens of billions of dollars into AI infrastructure and top AI talent. Investors will need to hope that this effort goes better than the company's previous splashy bets on the Metaverse.

Helpful Resources

• Full earnings report
• Investor relations page

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Timothy Green 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.