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Meta Platforms' (META) exorbitant spending on infrastructure and GPUs to support its AI products and tools continued to pay off in 4Q24 as the company easily beat EPS and revenue estimates. The pace of those investments is only expected to accelerate with META reiterating its FY25 capex guidance of $60-65 bln, representing an increase of nearly 60% yr/yr based on the midpoint of the guidance range. Given the company's string of impressive quarterly results, featuring sizable top and bottom-line beats in each of the past six quarters, and CEO Mark Zuckerberg's bullish AI predictions during the earnings call, investors are now willing to give META the benefit of the doubt when it comes to spending.

• META's advertising business is flourishing as revenue jumped by 21% yr/yr to $46.8 bln. This should be a positive sign ahead of Alphabet's (GOOG) and Snap's (SNAP) Q4 earnings reports on February 4, although it's not just a healthy advertising spending climate that's fueling META's healthy growth. Rather, the company's AI-powered tools that improve ad targeting and drive higher user engagement across its social media platforms are generating stronger ROI for its advertisers. 
• The improved ROI is supporting higher ad prices and more ad activity on META's platform. In Q4, average price per ad increased by 14% yr/yr, while ad impressions grew by 6% yr/yr.
• Staying true to form, META's advertising business once again offset hefty losses in the Reality Labs segment, which houses the company's metaverse/VR products like Quest headsets and Ray-Ban smart glasses. In Q4, Reality Labs racked up a loss of $5.0 bln on modest revenue growth of 1% yr/yr to $1.08 bln, indicating that demand for its VR products was sluggish during the holiday shopping season. Despite another quarter of steep losses, Mr. Zuckerberg maintained his bullish tone for Reality Labs, stating that 2025 will be the year when the growth trajectory for AI glasses as a category is understood.
• Beyond the upside Q4 results, we believe the market is reacting favorably to Mr. Zuckerberg's prediction that Meta AI will be the leading AI assistant this year, while the growth potential for most of the company's long-term initiatives also come into better focus. As expected, the topic of DeepSeek -- the China-based GenAI platform that's similar to OpenAI, but reportedly cost just $5.5 mln to build -- was a focal point during last night's earnings call. More specifically, the question was asked whether META needs to spend hundreds of billions in order to further develop its Llama AI technology, when DeepSeek only reportedly cost $5.5 mln to create. Mr. Zuckerberg took a page out of President Trump's playbook, highlighting the importance of not relying on Chinese tech and building out AI technology in the U.S.

The main takeaway is that META continues to distance itself in the digital advertising space, thanks to its AI-powered products and tools that are driving advertisers' ROI higher. While the loss-generating Reality Labs segment continues to flounder, excitement regarding META's GenAI assistant, which the company says could reach over 1.0 bln people this year, is mitigating that disappointment.