Meta’s AI spending in focus during Q2 earnings

When Meta Platforms (NASDAQ:META) is set to post second quarter results on Wednesday, the tech giant’s AI narratives and spending will take the spotlight, given Mark Zuckerberg’s high-stake gamble to secure its position in the AI race.

Wall Street expects the California-based company to post EPS of $5.86 on revenue of $44.84 billion, implying a rise of nearly 15% during the quarter.

Amid Silicon Valley’s intense AI battle, Meta grabbed headlines in June after the company invested $14.3 billion into Scale AI, leading to the startup’s CEO Alexandr Wang joining Meta to head its Superintelligence Labs team focused on artificial general intelligence.

The Facebook parent started to aggressively poach multiple top AI researchers from competitors, including OpenAI, Apple, and Google, as it has accelerated efforts into its superintelligence research. Recently, Zuckerberg appointed Shengjia Zhao, one of the co-creators of OpenAI’s ChatGPT, as the chief scientist of Meta Superintelligence Labs.

So far, investors backed Meta’s costly AI push even though the tech titan increased its guidance for full-year capital expenditures in April. Meta shares have gained nearly 23% so far this year, outperforming the over 8% rise in the broader S&P 500 Index.

Many analysts are saying that another upward revision of CapEx is not off the table. Last week, Alphabet hiked its FY capex forecast by 13% to $85 billion.

“We estimate that META’s CapX will be $68B in FY25, up 84% y/y, the fastest growth among the hyperscalers. The ROIC on this CapX is uncertain, and the larger the spending, the more likely there is waste, in our view,” said Needham analyst Laura Martin.

Scotiabank analyst Nat Schindler expects gross margins to decline next year.

The company’s core online advertising market also faces a major challenge from the global U.S.-China trade tensions.

Still, many analysts are bullish on the stock. Seeking Alpha analysts and Wall Street rated the stock a Buy and above, while Seeking Alpha’s Quant ratings consider it a Hold.

“CEO Mark Zuckerberg is known for his ability to create strong narratives, and I expect him to shine again during the Q2 earnings call,” pointed out a recent Seeking Alpha analysis.

Wedbush analyst Dan Ives said resilient digital advertising trends and commentary from management and ad agencies have restored some level of investor confidence despite increased caution at the start of the year.

Schindler also expects tariff impacts to persist during Q2, but will be offset by increased budgets from non-US advertisers due to dollar depreciation.

Over the last three months, EPS estimates have seen 21 upward revisions, compared to 10 downward revisions, while revenue estimates have been revised upwards 29 times versus 11 downward moves.