Meta’s AI Strategy Takes Shape as Q1 Revenue Climbs 16%

Meta Platforms is accelerating its artificial intelligence investments while simultaneously delivering strong financial results, as evidenced by its first quarter 2025 earnings report released Wednesday. The social media giant reported revenue of $42.31 billion for the quarter ending March 31, representing a 16% year-over-year increase and exceeding analyst expectations of $41.38 billion, while earnings per share reached $6.43, substantially outperforming the projected $5.22.

The company’s stock rose approximately 4% in after-hours trading following the announcement, with investors responding positively to both the strong quarterly performance and Meta’s strategic positioning in the AI landscape. “We continue to focus on building businesses that create meaningful value for our customers, and therefore significant growth opportunities for years to come,” said Susan Li, Meta’s Chief Financial Officer, during the earnings call, emphasizing the company’s balanced approach to current profitability and future growth investments.

Capital Expenditures Reflect AI Ambitions

One of the most notable aspects of Meta’s earnings report was the substantial increase in projected capital expenditures for 2025, which the company now expects to be between $64 billion and $72 billion, up from the previous forecast of $60 billion to $65 billion. This significant investment is primarily directed toward building out the infrastructure necessary to support Meta’s expanding AI initiatives, including data centers and specialized hardware.

“A portion of that spend has been redirected to other markets, but overall spend for those advertisers is below the levels prior to April,” Li explained, referencing both the capital expenditure increase and shifts in advertising patterns. The scale of this investment underscores Meta’s determination to remain competitive in the AI race with other tech giants like Microsoft and Google, who are similarly investing billions in AI infrastructure.

AI Integration Driving User Engagement

Meta’s focus on artificial intelligence appears to be yielding positive results in terms of user engagement across its family of apps. The company reported that its Meta AI digital assistant has already attracted nearly 1 billion monthly users, demonstrating rapid adoption of AI-powered features. Meanwhile, Meta’s platforms continue to show healthy growth, with daily active users across all apps reaching 3.43 billion, exceeding analyst estimates of 3.39 billion.

The company’s newer social platform Threads has now reached 350 million monthly users, up from 320 million in January, with the company announcing that it has begun allowing “all eligible advertisers globally” to run ads on the service. However, executives cautioned that Threads advertising is not expected to meaningfully contribute to revenue growth in 2025, positioning it as a longer-term opportunity.

Advertising Business Shows Resilience

Despite concerns about potential headwinds in the digital advertising market, Meta’s core business demonstrated remarkable resilience in the first quarter. Advertising revenue reached $41.39 billion, accounting for approximately 98% of total revenue and representing a significant increase from the previous year. The company also reported a 10% year-over-year increase in average ad prices, suggesting strong advertiser demand and improved ad effectiveness.

“We attribute weakness to [Meta’s] greater exposure to advertising (no cloud business for [Meta]) and China-based advertisers (>10% exposure for [Meta]) who have reportedly pulled back on ad spend,” noted Jefferies analyst Brent Thill in an investor note ahead of the earnings announcement. Despite these challenges, Meta’s advertising business outperformed expectations, suggesting the company’s ad platform innovations and targeting capabilities continue to deliver value to marketers.

Reality Labs Losses Continue but Narrow

Meta’s Reality Labs division, which encompasses the company’s virtual and augmented reality initiatives, reported an operating loss of $4.21 billion for the quarter. While this represents a substantial drag on overall profitability, the loss was actually less than the $4.6 billion that analysts had anticipated, indicating some improvement in cost management or revenue generation within this segment.

The division generated $412 million in revenue, which was down 6% from a year ago and fell short of analyst expectations of $492.7 million. As CNBC reported, Reality Labs continues to be a significant long-term investment for Meta, representing CEO Mark Zuckerberg’s vision for the future of computing and social interaction, despite the consistent financial losses over recent years.

Forward Guidance Reflects Confidence

Meta provided second-quarter revenue guidance in the range of $42.5 billion to $45.5 billion, which aligns with analyst expectations of $44.03 billion. This forecast suggests continued robust growth despite the company’s cautionary notes about potential headwinds from reduced advertising spending among Asian e-commerce exporters amid ongoing trade tensions.

The company also slightly lowered its 2025 total expense forecast to a range of $113 billion to $118 billion, down from the previous outlook of $114 billion to $119 billion. This adjustment, combined with the increased capital expenditure forecast, suggests Meta is reallocating resources toward infrastructure investments while maintaining discipline in other expense categories, a balance that appears to have resonated positively with investors based on the after-hours stock movement.