Meta relies on AI and alerts its investors. In its earnings report on Wednesday, CEO Mark Zuckerberg announced that the tech giant is raising its capital expenditure estimates, which include spending on AI training and data centers, by billions of dollars – and expects further increases in the long run.
Meta increased its spending estimates to $35 billion to $40 billion from $30 billion to $37 billion. “We assume that investments will continue to increase [in 2025] “As we invest aggressively to support our ambitious AI research and product development efforts,” said CFO Susan Li.
This huge spending spooked investors a lot that shares plunged as much as 16% immediately after the discharge. But Deutsche Bank says shareholders are incorrect to be afraid of Meta’s huge use of AI: Its leading position within the promoting game makes the corporate a first-rate contender for long-term profits.
“As the fastest-growing large-scale advertising platform, we argue that Meta is actually focusing on Gen AI from a position of strength,” the bank wrote in a research note issued after the outcomes were released. “Meta is entering an investment cycle. We’ve been here a few times and each time it’s ended the same way… good for Meta’s longer-term equity value.”
Meta has already launched several consumer-focused AI tools, including AI-enabled smart glasses developed in collaboration with Ray-Ban and its open-source AI model Llama 3. But Deutsche Bank says advice algorithms are where AI will make the most important difference for Meta. Meta’s hottest apps, including Instagram, FacebookAnd subjectsare already using AI to inject tailored content into users’ feeds – and so they’re all proven to generate profits.
Deutsche Bank noted that on Facebook, an app typically related to displaying content posted by a user’s friends, 30% of posts viewed are AI-recommended, and that number rises to 50 on Instagram % increases. The use of AI within the Reels algorithm has resulted in users spending 8-10% more time on the app. Given that Meta already understands the promoting game for these apps, using AI recommendations to extend the time users spend on them is a transparent path to more revenue.
“AI-driven ranking and targeting improvements continue to drive ad efficiency as Reels’ ad load continues to converge toward that of Feeds and Stories,” Deutsche Bank wrote. “We see Gen AI driving the next phase of growth for Meta by: 1) increasing user engagement and use cases with products and services like Meta AI and Agents for Creators; 2) unified AI-powered recommendations across all apps, which now account for more than 50% of content viewed on IG; [and] 3) Drive automation for advertisers.”
However, investors may not see the outcomes immediately. Zuckerberg said on the earnings call: “At this stage of our product playbook, where we’re investing in a new product and scaling it but not yet monetizing it, we’ve seen a lot of volatility in our stocks in the past.” Meta already has almost Poured $50 billion into its Metaverse initiatives, which have yet to deliver clear advantages. And Meta has signaled that it continues to be within the early stages of pumping money into its AI plans, meaning investors should prepare for more big spending numbers in the long run.
“Meta is making larger investments in AI than we expected, which will likely result in capex spending for a much longer period,” Deutsche Bank wrote.
In the long run, nevertheless, Deutsche Bank argues that AI’s usefulness for ads, the backbone of Facebook’s business model, positions the investment for large long-term gains.
“Given the fair valuation following last night’s decline, the strong shareholder return and the fundamentally better advertising platform gaining market share, we believe it is prudent to view the company’s growing AI ambitions as positive,” Deutsche Bank wrote.
