Meta’s ad strength gives its AI spending some cover

Meta Platforms is hardly the only big tech company with no plans to put the brakes on its blowout artificial-intelligence spending. It might be the only one where that news was already priced in.

The parent company of Facebook and Instagram used its second-quarter report on Wednesday to announce plans to make between $37 billion and $40 billion in capital expenditures this year. That is up from the prior range of $35 billion to $40 billion that the company gave three months ago—essentially a 3% raise at the midpoint.

Either one is a tidy sum given Meta’s size—at least relative to its other megacap tech peers. An outlay of $37 billion would represent 23% of what Wall Street projects for Meta’s total revenue this year. Amazon.com, Microsoft and Google parent Alphabet are projected to devote between 10% and 20% of their revenue to capex over the same period, according to consensus estimates from FactSet. And for good measure, Meta also said Wednesday that it expects “significant capital expenditures growth” in 2025. Three months ago the company simply said capex “will continue to increase” in the next year.

It was basically the same message on that front that Microsoft and Google broadcast in their recent reports. But Meta’s stock jumped more than 7% in after-hours trading following its Wednesday afternoon release, compared with respective drops of 1% and 5% for Microsoft and Alphabet following their results. Meta’s revenue beat Wall Street’s consensus estimate by a slightly wider margin than those other two. It also helps that the stock had already experienced sticker shock from AI spending plans broadcast in the last earnings season. Meta is the only one of the six trillion-dollar tech megacaps to have seen its shares lose ground between its March quarter report and the latest one.

Meta’s turbulent record over the past few years shows that its investors are willing to roll with expensive ambitions as long as the core business holds up and other costs are held down. That is proving to be the case now. Advertising revenue grew 22% year over year to $38.3 billion, which was $3 billion higher than what Wall Street expected. Operating income of $14.8 billion also beat analysts’ estimates, despite a loss of nearly $4.5 billion in the Reality Labs division that houses the company’s VR and metaverse efforts.

The company is also keeping to the lessons of its “year of efficiency.” Head count grew by 1,470 in the June period, but remains 19% below the company’s peak in late 2022. Revenue per employee is up 51% from that time.

Still, investors are getting antsier about the expensive race to build generative-AI services. It is a boon for Nvidia: The AI chip star’s stock jumped more than 3% in after-hours trading Wednesday following Meta’s results after surging nearly 13% in the regular session following Microsoft’s report. Capex questions from analysts dominated both earnings calls, and Meta Chief Executive Officer Mark Zuckerberg maintained his previously stated view that Meta’s direct payoff from GenAI services isn’t close at hand. “I don’t think that anyone should be surprised that I would expect that that will be years,” he said on Wednesday’s call.

Years are something the 40-year-old centibillionaire has. And years it might take, given the still tight supply of Nvidia’s most powerful chips. Zuckerberg showed up on stage with Nvidia CEO Jensen Huang at a conference on Monday, with the two joking about the 600,000 GPU chips Meta has already bought from the company.

Huang is laughing all the way to the bank now. Zuckerberg eventually needs to ensure that his company’s AI spending doesn’t become a punchline.

Write to Dan Gallagher at dan.gallagher@wsj.com