Meta sees AI spending accelerating as earnings top forecasts

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Meta cited “strong momentum” in its numerous bets on artificial intelligence as quarterly revenue and earnings topped Wall Street expectations, while acknowledging that spending on the technology will continue to accelerate next year.

Revenues in the third quarter increased 19 per cent to $40.6bn, at the top end of its guide range and a whisker above Wall Street estimates of $40.3bn. Net income jumped 35 per cent to $15.7bn, well above consensus of a rise to $13.6bn.

However, the response from investors was muted, as Meta posted big losses from Reality Labs, its virtual and augmented reality arm, and said that it expected “significant” capital expenditures growth in 2025 as it invested in running costly AI infrastructure.

Meta shares, which are up more than 70 per cent in 2024 to recent record highs, were down about 3 per cent immediately after the results were released but pared their losses slightly to trade down about 2 per cent after hours.

Meta has poured investment into AI to improve its advertising offering and its content feeds, and begun integrating generative AI tools into the platform for users and creators.

Chief executive Mark Zuckerberg is facing pressure to show that his plans to go all in on AI are monetisable. In a statement he said the company had “a good quarter driven by AI progress across our apps and business”.

In particular, he touted “strong momentum” in Meta AI, the company’s chatbot, and the adoption of its open large language model Llama by businesses and developers.

He also pointed to recent excitement around its AI-powered glasses, part of a partnership with Ray-Ban eyewear. Zuckerberg recently doubled down on his push to build augmented reality glasses in the belief that headsets will be the next computing platform, unveiling a prototype called “Orion” to much fanfare in September.

On Wednesday, the company said that Reality Labs posted $270mn in revenues in the third quarter — and $4.4bn in operating losses. It added that it expected full-year operating losses for Reality Labs to “increase meaningfully” year over year.

Earlier this month, the Financial Times reported that Meta was restructuring certain teams across WhatsApp, Instagram and Reality Labs, including cutting some staff and relocating others.

Youssef Squali, head of internet and media equity research at Truist Securities, said, “Meta has grown more confident in its ability to leverage AI and [machine learning] across its [apps], and will lean in more heavily on infrastructure investments to support its AI road map,” but added that the stock had “got ahead of itself”.

The company said it anticipated fourth-quarter sales in the range of $45bn-$48bn. The consensus estimate was $46.2bn, according to S&P Capital IQ.

It raised the bottom of its range for full-year 2024 capital expenditure guidance by $1bn to $38bn-$40bn, forecasting “significant acceleration in infrastructure expense growth” next year due to the “higher growth in depreciation and operating expenses of our expanded infrastructure fleet”.

Daily active users across its family of apps rose 5 per cent to 3.3bn.