The drop in tech stocks this month is putting pressure on Meta Platforms to impress investors when it releases results and prove that its ambitious visions in artificial intelligence are well worth the heavy investment. Analysts expect the social media giant to earn $4.73 a share on revenue of $38.3 billion when it reports second-quarter results after the market closes on Wednesday. More essential to Wall Street is the corporate’s capital expenditures – or spending – as investors demand clear signs that its heavy investments in AI are beginning to repay. META: $1 million mountain in Meta shares this month The increased attention on AI spending comes on the heels of Alphabet’s quarterly earnings release and through an important week of earnings from 4 tech giants. While Alphabet beat Wall Street estimates, the rising spending sparked a wave of sell-offs across the sector. Meta shares have already fallen greater than 6% in July and greater than 2% last week. But there’s a silver lining. Shweta Khajuria of Wolfe Research said Alphabet’s results could lower the bar for others, including Meta. Analysts surveyed by StreetAccount expect the corporate to make $9.5 billion in capital expenditures during that period. For the 12 months, the corporate expects capital expenditures to be between $35 billion and $40 billion. Morgan Stanley analyst Brian Nowak said capital expenditures would speed up “significantly” through 2025 and 2026 because the social media giant shows more engagement and revenue with the brand new projects. Industry discussions already point to a rise in Reels engagement. “Even without those green shoots, we still see a path toward a base case of ~$29.” [free cash flow] in ’26,” he wrote. Earlier this month, Raymond James analyst Josh Beck raised his 2025 capital spending estimates to $50 billion as the company builds out Llama, its updated large language model. But Beck also sees Meta shares moving higher, as he raised his price target to $600. Wells Fargo analyst Ken Gawrelski expects the earnings report to give investors a better sense of the company’s prospects. “Uncertainty around capital spending is prone to remain, but after the Q2 conference call, investors ought to be more optimistic about 2025 revenue and margins,” he wrote. A bounce in advertising Wall Street is also keeping an eye on advertising numbers this quarter, with Nowak thinking Meta is best positioned to weather any uncertainty. “Through the noise, Q2 data suggests revenue strength tied to higher global promoting spending by Temu (+>100% Y/Y), while the return of media and technology ad spend should profit Meta,” added Bernstein’s Mark Shmulik. META YTD Mountain Stock Performance This Year The upcoming election and the Paris Olympics could act as tailwinds for the company by increasing cost per minute, said Deutsche Bank’s Benjamin Black. This setup underpins his confidence in the company’s performance near the “top end” of its second-quarter guidance. A possible TikTok ban in the new year could also bode well for advertising, added Bank of America’s Justin Post. “We remain optimistic about Meta & Thing Reels, messaging and AI-driven ad enhancements, that are still in early stages and may lead to positive product surprises and revenue increases,” he wrote.
Sunday, November 24, 2024
