Meta Stock Could Pop If AI Investments Accelerate Ad Revenue

There is something special about CEOs who start and run publicly traded companies. They have the creative spark, drive, and determination to keep placing bets on new growth opportunities.

They also have a special mindset — dubbed Cognitive Hunger in my book, Brain Rush — that can produce the kind of expectations-beating growth that propels a company’s stock price to new highs. Sadly, investors can pay a short-term price when those bets do not pay off.

This comes to mind in considering the mixed third-quarter report of Meta Platforms — whose founder and CEO Mark Zuckerberg made such a huge bet on what he called the metaverse — that he changed the company’s name from Facebook.

His willingness to place such bets sent Meta’s stock down more than 1% in October 31 pre-market trading.

While Meta exceeded third-quarter earnings expectations, investors were not persuaded by the company’s contention that “really big” opportunities justify a “significant acceleration” in spending on AI capital expenditures in 2025, as Zuckerberg told investors in an October 30 earnings call. What’s more, Meta’s user growth in the quarter fell short of expectations.

Despite these concerns, here are two reasons this dip could present a buying opportunity:

• Advertiser adoption of Meta’s generative AI tools; and
• Meta’s greater expense discipline.

Analysts see the potential for Meta stock to rise over the next year.

Meta’s Mixed Third Quarter Financial Results

Meta’s financial performance was mixed in the latest quarter. The good news was stronger-than-expected third-quarter advertising revenue growth.

The bad news was a slight shortfall in user growth — as measured by the “number of users who signed into at least one of its apps in a day” — and “significant acceleration” in 2025 infrastructure spending, according to the Associated Press.

Here are the key numbers:

• Q3 2024 revenue: $40.59 billion — up 19% and $380 million more than the analyst consensus, according to FactSet Research.
• Q3 2024 net income: $15.69 billion — up 35% from the previous year, noted AP.
• Q3 2024 earnings per share: $6.03 — up 37% from the previous year and 81 cents above the FactSet estimate.
• Q3 2024 “family daily active people:” 3.29 billion on average for September — 20 million below the analysts’ consensus, AP reported.
• Q4 2024 revenue forecast: A range between $45 billion and $48 billion — the midpoint of which exceeds analysts’ $46 billion forecast by $500 million, noted Bloomberg.

“We had a good quarter driven by AI progress across our apps and business,” Zuckerberg said in a statement. “We also have strong momentum with Meta AI, Llama adoption, and AI-powered glasses.”

Advertiser Adoption Of Meta’s Generative AI Tools

Falling short of user growth expectations puts pressure on Meta to boost revenue per users. The company told investors its AI tools are boosting advertising effectiveness.

“The miss in its user metric, daily active people, is concerning, as Meta will need to squeeze more revenue out of its existing users as growth slows,” Emarketer analyst Jasmine Enberg told AP.

Meta could accomplish this goal “as its AI-powered tools are boosting engagement by helping show users more of what they like and making its ads, particularly on Reels, more effective,” she added.

Meta’s AI-driven feed and video recommendations are helping to boost engagement. More specifically, these tools resulted in an 8% increase in time spent on Facebook and a 6% increase on Instagram, Zuckerberg told investors in the call.

Moreover, in the past month “more than one million advertisers used Meta’s generative AI tools to create more than 15 million ads,” he added. Moreover, businesses “using image generation are seeing a 7% increase” in the number of users to make a purchase after viewing the ad, Zuckerberg said.

Finally, Meta’s Threads — a rival to Elon Musk’s X — now has 275 million monthly active users, a 50% increase since April 2024. In October the company rolled out Meta AI — its free generative AI tool — which it plans to make “available in 43 countries and a dozen languages,” reported the Journal.

These new services could offer the potential for Meta to boost ad revenue.

Meta’s Greater Expense Discipline

Meta has persuaded some investors of the company’s ability to control expenses.

Despite a 9% headcount increase to 72,000 employees over the last year, Zuckerberg has emphasized the company’s frequent layoffs aimed at ongoing “efficiency,” noted Fortune.

This has resulted in an increase in operating profit. Due to the company’s 13% growth in operating expenses in the third quarter — below the company’s 19% revenue growth — Meta’s operating margin has increased three percentage points to 43% in the last year, Fortune reported.

One analyst was impressed with this effort. “They’ve really shown they’ve gotten to a level of expense discipline and AI is actually adding to the bottom line,” Justin DuMouchelle, a portfolio manager at New York-based Cerity Partners, told the Journal.

Meta’s Expensive Bets On The Metaverse And AI

Meta has clearly demonstrated a willingness to place enormous bets on growth opportunities.

Zuckerberg’s bet on “the so-called metaverse, a virtual space where he expects people to work and spend time in the future,” the Journal noted, has resulted in $50 billion in losses. In the latest quarter, Meta’s Reality Labs unit — maker the Quest headset and Ray-Ban Meta smart glasses — posted $4.4 billion in operating losses.

Meta has spent more than expected on capital expenditures — largely for AI. During the earnings call, the company raised to low end of its 2024 capital expenditures guidance by $1 billion to $38 billion — while the high end remained at $40 billion.

Meta expects capital expenditures to increase “significantly” in 2025. These investments are justified by the potential returns. “I just think that the opportunities here are really big,” Zuckerberg told investors. “I’m proud of the teams that are doing great work to stand up a large amount of capacity so that way we can deliver world-class models and world-class products,” he added.

One analyst expressed a mixed reaction. “Meta is firing on all cylinders and A.I. is clearly driving growth,” Jesse Cohen, a senior analyst at Investing.com, told the New York Times. “With that being said, investors appear to be disappointed about the company’s forward guidance and the rising costs needed to develop A.I. features.”

Investors see some upside for Meta stock. The average analyst price target of $613.13 per share, according to Barron’s, represents 5% upside.

Shares could rise more than that if AI can drive up Meta’s ad revenues more than investors expect.