Meta Platforms (META) will report its second-quarter earnings on July 29, with the company well-positioned to deliver another quarter of solid revenue growth. However, while Meta's advertising business remains resilient and is growing at a solid pace, investors are increasingly focused on the soaring cost of Meta's artificial intelligence (AI) ambitions.
Like other Big Tech companies, Meta has been pouring billions of dollars into servers, networking infrastructure, and data centers to expand its AI capabilities. Those investments are helping position the company for long-term growth while putting pressure on margins and raising questions about when AI spending will begin to generate meaningful financial returns.
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That concern is unlikely to fade with the upcoming Q2 earnings report. Earlier this year, Meta raised its 2026 capital expenditure forecast to $125 billion to $145 billion, up from its previous range of $115 billion to $135 billion, signaling an even more aggressive investment strategy. As a result, AI-driven spending is likely to remain high in Q2.
www.barchart.com Meta’s Soaring Ad Revenue to Power Q2 Revenue
While concerns over rising capital expenditures may limit further upside in META stock, the company's core advertising business continues to deliver exceptional performance. Meta's Q2 results could once again reflect robust advertising growth alongside accelerating momentum in its high-margin subscription business.
Notably, Meta's Family of Apps advertising business generated $55 billion in Q1 revenue, up 33% year-over-year (YOY). The advertising business benefited from both stronger user engagement and improved monetization. Ad impressions across Meta's platforms increased by 19%, driven by higher user counts, increased engagement, and improved ad frequency. At the same time, average price per ad rose 12% YOY, reflecting stronger advertiser demand and improved ad performance driven by AI-powered recommendation and targeting enhancements.
User engagement across Meta's platforms is likely to remain strong in Q2. Instagram and Facebook recorded their highest-ever video consumption levels. This trend will likely sustain, driven by improvements in Instagram's recommendation algorithms, which will increase time spent on Reels. Notably, in Q1, time spent on Reels increased by 10%, while Facebook's global video watch time rose more than 8%. WhatsApp also continued to expand its user engagement, strengthening its long-term monetization opportunity.
Beyond advertising, Meta's non-advertising business delivered another strong quarter. Family of Apps' other revenue climbed 74% YOY to $885 million, driven primarily by growth in WhatsApp's paid messaging services and subscription products.
These trends position Meta for another quarter of robust revenue growth. The company guided Q2 revenue of $58 billion to $61 billion, with the midpoint implying YOY growth of more than 25%.
While revenue momentum remains strong, profitability is expected to come under pressure due to higher spending. Consensus estimates project Q2 earnings of $7.13 per share, marginally below the prior-year period. However, Meta has exceeded Wall Street's earnings expectations in each of the past four quarters, raising the possibility of another earnings beat.
Analysts Are Bullish on Meta Stock Ahead of Q2
Wall Street is optimistic about META stock as the company prepares to report its Q2 results. While Meta Platforms could deliver another quarter of solid revenue growth, near-term earnings could remain under pressure as the firm continues investing heavily in AI capabilities.
Despite those short-term headwinds, the long-term outlook for Meta remains compelling, with analysts expecting earnings growth to reaccelerate in 2027. The company's AI investments are likely to deliver solid returns through higher ad revenue, while higher-margin subscription revenue will continue to expand.
Meta's valuation also remains attractive. The stock trades at approximately 20.8 times forward earnings, a reasonable multiple for a company that dominates the global social media landscape and continues to generate robust ad revenue.
Wall Street currently maintains a consensus “Strong Buy” rating on META stock heading into the Q2 report, signaling continued optimism despite near-term profit pressures.
www.barchart.com Final Takeaway
Meta Platforms' Q2 results are expected to highlight the strength of its core advertising business, but elevated AI-related spending will likely remain the key focus for investors. The company's dominant digital advertising platform, expanding monetization opportunities, and long-term AI strategy continue to support a favorable growth outlook. With analysts remaining bullish and the valuation still reasonable, Meta appears to be a solid long-term bet. However, heavy capital expenditures could weigh on near-term margins and limit immediate stock upside.
On the date of publication, Amit Singh did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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