Meta is betting the farm on AI, and it’s alarming investors. In its earnings report Wednesday, CEO Mark Zuckerberg announced the tech giant was raising its estimates for capital expenditures, which includes spending on AI training and data centers, by billions of dollars—and it anticipates it will scale up even more down the line.
Meta raised its spending estimates to between $35 billion and $40 billion, up from between $30 billion and $37 billion. “We expect capital expenditures will continue to increase [in 2025] as we invest aggressively to support our ambitious AI research and product development efforts,” said CFO Susan Li.
Those huge spending numbers scared investors enough to send shares plunging up to 16% immediately following the release. But Deutsche Bank says shareholders are wrong to fear Meta’s huge wager on AI: Its pole position in the advertising game makes it a prime contender to benefit in the long run.
“As the fastest growing ad platform at scale, we argue Meta is actually leaning into gen AI from a position of strength,” wrote the bank in a research note issued following the earnings release. “Meta is entering an investment cycle. We have been here a couple of times before, and each time it ended the same way … good for Meta’s longer-term equity value.”
Meta has already rolled out multiple consumer-facing AI tools, including AI-enabled smart glasses built in collaboration with Ray-Ban and its open-source Llama 3 AI model. But Deutsche Bank says that recommendation algorithms are the place AI is going to make the biggest difference for Meta. Its most popular apps, including Instagram, Facebook, and Threads, are already leveraging AI to push customized content into users’ feeds—and they’re all proven profit generators.
Deutsche Bank pointed out that on Facebook, an app typically associated with seeing content posted by a user’s friends, 30% of posts viewed are AI-recommended, and that number rises to 50% for Instagram. Leveraging AI in the Reels algorithm has resulted in users spending 8% to 10% more time on the app. Given that Meta already has the advertising game figured out for these apps, using AI recommendations to increase the amount of time users are spending on them is a clear path to more revenue.
“AI-driven ranking and targeting improvements continue to boost ad efficiency, while Reels’ ad load continues to converge towards that of feed and stories,” Deutsche Bank wrote. “We see gen AI driving the next leg of growth for Meta by 1) increasing engagement and use cases for users with products and services such as Meta AI and Agents for creators; 2) unified AI-powered recommendations across apps, which is now driving more than 50% of the content viewed on IG [Instagram]; [and] 3) driving automation for advertisers.”
Investors might not see the results immediately, though. Zuckerberg said on the earnings call that Meta has “historically seen a lot of volatility in our stock during this phase of our product playbook, where we’re investing and scaling a new product but aren’t yet monetizing it.” Meta has already poured close to $50 billion into its metaverse initiatives, which have yet to yield any clear benefits. And Meta has signaled it’s still at the early stages of pumping money into its AI plans, meaning investors should brace for more big spending numbers in the future.
“Meta is making bigger investments in AI than we anticipated, which will likely result in capital expenditures being much higher, for far longer,” Deutsche Bank wrote.
In the long run, though, Deutsche Bank argues that AI’s usefulness for ads, the backbone of Facebook’s business model, positions the investment for big long-term gains.
“Given the reasonable valuation after last night’s pullback, strong shareholder return story, and fundamentally better advertising platform that’s gaining share, we argue it’s prudent to view the company’s growing AI ambitions as a positive,” Deutsche Bank wrote.
