Meta shrugs off the market’s AI investment worries with another knock-out quarter

• Meta's second quarter earnings beat expectations
• Earnings have now exceeded forecasts for six quarters in a row
• All eyes on AI-related capital expenditure as Meta amends guidance once again
• Shares rise in pre-market trading but there are still some worry spots

"A lot was riding on Meta's results and there was a big risk that beating earnings expectations wouldn't be enough to win over the market. Big tech has been in and out of favour in recent weeks and the stock could have easily tanked if the market was in a bad mood. That hasn't happened," says Dan Coatsworth, investment analyst at AJ Bell.

"Meta has not only smashed earnings forecasts for the sixth quarter in a row, but it has reported on a day when the sector was in comeback mode.

"Despite the positive headline news, there are still some worry spots including rising costs, gigantic AI-related infrastructure spending levels, and ongoing losses for its Reality Labs hardware division. On top of that is growing pressure from regulators to stop big tech companies like Meta stifling competition.

"Sentiment towards the Magnificent Seven group of companies including Meta has weakened in recent weeks for several reasons. In addition to uncertainty around geopolitics and elections prompting some profit taking, investors have become wary of companies making big investments into AI, for fear that some won't ever see a positive return on their money.

"Until recently, if a company mentioned anything to do with AI, their share price would rocket. The market is now more cautious as investors want to avoid being burned like the dotcom boom and bust when many companies thought all they had to do was build a website and that would guarantee them riches. Reality soon catches up and the economics come front and centre.

"Meta's already-significant investment into infrastructure to support AI could get even bigger than previously expected. Having increased its full-year capital expenditure guidance at the first quarter results from a range of $30 billion to $37 billion to a new range of $35 billion to $40 billion, those numbers have once again been tweaked. Meta now expects to spend $37 billion to $40 billion, which is a narrower range but the bottom end slightly higher.

"What separates Meta from the crowd is that it already has proof that AI is supporting the business. AI has helped its social media platforms to better predict the type of video content that will keep viewers engaged.

"The more time people spend scrolling social media posts on places like Instagram and Facebook, the more adverts they can be served and the more advertising income that goes into Meta's pockets. That explains why advertising impressions jumped by a lot in the period. It also helped that the average price per advert went up.

"Meta hopes to be crowned king of AI. Mark Zuckerberg might have been obsessed with the metaverse for a long time, but cementing the company's position at the top of the AI tree is now his priority. He is confident Meta AI will become the world's most-used AI assistant by the end of the year.

"Zuckerberg might be able to grab the top spot but it will be a hard fight to stop others from overtaking the company as there are plenty of contenders eager to take the crown."