Meta Platforms Inc., led by CEO Mark Zuckerberg, has seen its shares rise by 13% this month, significantly outperforming other major tech companies.
TakeAway Points:
- Meta shares soared 13% this month, approaching all-time highs, propelled by CEO Zuckerberg’s compelling AI vision and robust Q2 earnings.
- Despite increasing capital expenses, Meta’s AI investments improve content recommendations and ad targeting, increasing revenue and investor trust.
- On the other hand, Microsoft’s stock stayed unchanged as Azure growth slowed, while Alphabet’s shares dropped 9% following earnings due to concerns over excessive expenditure.
Meta’s AI Vision
This surge comes despite Meta reporting another increase in capital expenditures and pledging to spend even more in the future. The stock is now less than 1% short of its record closing price from last month. Zuckerberg has effectively convinced investors that AI is enhancing the company’s core business of digital advertising.
Gene Munster, managing partner of Deepwater Asset Management, remarked, “It was his best earnings call as a public CEO. He explained the near-term benefits of AI, the long-term benefits, and the timing of how all this is going to play out. And he did it in a compelling way.”
Meta has been leveraging AI to improve how advertisers can target users, adding efficiency to its primary revenue stream. The company is also using proprietary large language models to enhance content recommendations, driving engagement across Facebook and Instagram.
As a result, Meta’s earnings per share and revenue for the second quarter exceeded analyst estimates. Doug Anmuth of JPMorgan noted that Meta “continues to earn the right to spend big on GenAI.”
Competition with Other Tech Giants
While Meta has successfully communicated the benefits of its AI investments, other tech giants have struggled to do the same. Shares of Alphabet, the parent company of Google, have fallen 9% since its earnings report on July 23, which showed higher-than-expected capital spending despite beating profit and revenue estimates.
Microsoft has also faced scrutiny, with its stock remaining flat since its earnings report on July 30, which highlighted slowing growth in its Azure cloud-computing business. Alec Young, chief investment strategist at Mapsignals, commented, “Google sort of said, ‘Well, we have to spend money to keep up with everyone,’ which didn’t really sell it very well. Microsoft sold it a little better. They’re effectively doing the same thing.”
Meta’s recent success is a stark contrast to its performance just a quarter ago, when the stock suffered after the company raised its capital spending forecast while delivering slower sales growth than anticipated. This followed a challenging period in 2022 when Meta’s pivot to the metaverse led to significant spending with little immediate payoff, causing the stock to lose nearly two-thirds of its value.
Capital Outlays and Upcoming Projects
In the quarter that ended in June, Apple, Microsoft, Alphabet, Amazon, and Meta collectively increased their capital expenditures to a record $55 billion, a 55% year-over-year jump, according to Bloomberg data. Andrew Ye, investment strategist at Global X ETFs, stated, “Meta has been and will continue to invest significantly in Generative AI, but has arguably articulated its vision of AI integration more clearly than its competitors.”
Meta’s clear communication and strategic focus on AI have helped it gain investor confidence. The company has been using AI to improve its advertising efficiency and content recommendations, which have positively impacted its financial performance. This approach has set Meta apart from its peers, who have struggled to justify their AI investments to investors.
