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In its pursuit to stay ahead of the AI curve, Meta Platforms (META) raised its FY24 capex guidance again in its Q2 earnings report, but unlike last quarter, shareholders are taking the news in stride. In fact, based on the stock's bullish reaction to the earnings report, it seems that investors are coming around to Mark Zuckerberg's ambitious spending plans. Unlike when the company was pouring billions of dollars into the highly unprofitable metaverse in 2022 -- a year in which the stock crated by 65% -- investors are already seeing a tangible return on META's AI investments.

• In Q2, revenue jumped by 22% to $39.1 bln, beating expectations, on the strength of its advertising business. Powered by its Llama 3 large language model, META's AI functionalities are helping to improve advertisers ROI by identifying users across META's platforms that are most likely to become customers. During the earnings call, CFO Susan Li provided some context surrounding the positive impact of META's new AI tools, noting that return on ad spending increased by 22% in the U.S.
• In addition to this improved efficiency, META's social media apps continue to expand, with Mr. Zuckerberg highlighting the growth of WhatsApp, which now has over 100 mln monthly active users in the U.S. In total, Daily Active People (DAP) increased by 7% yr/yr across all META platforms for a total of 3.27 bln.
  • This user growth, combined with the new AI capabilities, led to a 10% increase in both ad impressions delivered and average price per ad.
• There was also some concern ahead of META's earnings report that advertising spending was softening. On Tuesday night, Pinterest (PINS) issued downside Q3 revenue guidance, and one week earlier, Alphabet (GOOG) reported that Q2 advertising revenue growth slowed a bit to 11% from 13% in Q1.
  • META eased those worries, though, by edging past Q2 revenue estimates while providing Q3 revenue guidance of $38.5-41.0 bln, slightly topping expectations at the midpoint of the range.
  • The solid top-line performance and outlook reinforces the notion that META's AI investments are paying off as advertisers shift over to its platforms.
• Speaking of those AI investments, META raised the low end of its FY24 capex guidance, forecasting capex of $37-$40 bln, compared to its prior outlook of $35-$40. Furthermore, Mr. Zuckerberg made it clear that there are no plans to slow the pace of investments.
• To the contrary, he stated that capex is expected to grow significantly in 2025 and will likely continue to grow substantially over a multi-year timeline. In his view, there is a greater risk of underinvesting in AI capacity rather than in over-building due to the massive role that AI is going to play over the next 10-15 years.

If it weren't for META's strong Q2 results, including a 73% yr/yr surge in EPS to $5.16, the aggressive spending plans would likely be weighing on the stock today. What META's impressive Q2 report shows, however, is that it has found a good balance between generating earnings growth and investing for future growth.