Meta Platforms’ stock is showing signs of a robust recovery after a challenging period earlier this year, a period characterized by investor apprehension over the social media behemoth’s substantial investments in artificial intelligence. The upcoming earnings report is poised to be a critical determinant of whether this rebound can sustain its momentum. The stakes are undeniably high, as Meta is currently engaged in one of the most ambitious AI infrastructure buildouts among the tech megacorporations. In recent weeks, the parent company of Facebook and Instagram has revealed significant commitments to cloud infrastructure and the development of custom silicon chips, alongside substantial compute capacity procurement. These strategic moves are all part of an overarching plan to invest as much as $169 billion this year, with the lion’s share earmarked for artificial intelligence initiatives.
Investors are increasingly scrutinizing whether these considerable expenditures are beginning to yield tangible returns. Thus far, the market has grappled with how to fully appraise Meta’s audacious strategic vision. The stock initially surged following its fourth-quarter earnings release on January 28th, when management projected that 2026 operating and capital expenditures would significantly exceed expectations, effectively consuming nearly all anticipated productivity and revenue growth for that year. For a brief moment, investors reacted with enthusiasm, propelling the stock to a closing price of $738. However, market sentiment subsequently shifted, leading to a roughly 29% decline in the stock over the subsequent two months, reaching a low of $525 in late March.
Since then, Meta’s stock has rebounded by an impressive 28%, closing Tuesday at $671. While a portion of this recovery can be attributed to the broader market’s upward trend following the geopolitical concerns around March 30th, investor optimism also appears to be fueled by a series of announced investments aimed at bolstering Meta’s compute capabilities. The introduction of a new flagship AI model has also contributed positively to market sentiment. Year-to-date, Meta’s stock has appreciated by nearly 2%.
Further underscoring Meta’s strategic expansion, on Friday the company announced a multi-billion dollar partnership with Amazon Web Services. This collaboration will see AWS Graviton processors deployed at scale, positioning Meta as one of the largest global consumers of Amazon’s in-house designed chips. These processors are intended to power workloads critical to enhancing Meta’s core advertising business. Earlier this month, Meta also committed $21 billion to AI cloud infrastructure firm CoreWeave, building upon a previous $14.2 billion agreement. In March, the company secured an agreement with Dutch cloud provider Nebius, potentially worth up to $27 billion. Meta has also expanded its existing partnership with Broadcom to acquire its next-generation AI chips, while concurrently developing four of its own custom silicon options.
In a prescient note dated March 29th, analysts at Morgan Stanley posited that the market had fixated too intently on the costs associated with AI development, while underestimating the potential returns. They highlighted that Meta’s core business continues to demonstrate strong growth, even as its stock valuation has become more attractive. “We believe engagement [time spent] is accelerating [off of large numbers], which gives META even more time and engagement to monetize, while we believe the time spent growth is high quality and monetizable too, given the surge in video-based content,” the analysts observed.
Echoing this optimistic outlook, Jim Cramer remarked during his April Monthly Meeting, “I don’t like to bet against Mark [Zuckerberg] when it comes to money.” He further elaborated, “You’re buying a call on that incredible talent that Zuckerberg got. We used to think that was a negative. Not anymore cause of this Muse Spark, their new flagship model designed for personal intelligence.”
As the company approaches its earnings report, investors are keen to see more concrete evidence that Meta’s AI strategy is translating into accelerated growth within its advertising segment, the development of superior products, and enhanced profitability. The vast majority of Meta’s revenue is currently derived from advertising. Stakeholders, including those at the CNBC Investing Club, will be looking for detailed insights into the efficacy of Meta’s AI-powered advertising tools, such as Advantage+ and AI-generated ad solutions. These innovations have already proven to be transformative in improving ad performance, with Reels emerging as a significant beneficiary. Last quarter, watch time on Instagram Reels in the U.S. increased by 30% year-over-year, while Facebook video watch time saw double-digit growth.
Muse Spark, the inaugural project from Meta’s newly established Meta Superintelligence Labs, holds the potential to represent the next phase of growth for the company’s advertising business and help sustain its stock’s upward trajectory. Initial investor reception to Muse Spark has been positive. Meta’s stock saw a 6.5% increase on April 8th following the release of Muse Spark, driven by enthusiasm that it could significantly enhance its core advertising model and justify its substantial AI investments.
For Meta, Large Language Models (LLMs) are fundamentally integrated into its advertising growth strategy. These AI models possess the capability to predict user content preferences and identify products of interest, thereby optimizing ad targeting. An LLM is an advanced AI system trained on extensive datasets, enabling it to comprehend human language, recognize intricate patterns, engage in reasoned problem-solving based on prompts, and generate coherent responses. Muse Spark, in particular, is a multimodal reasoning model capable of processing text, images, and audio. Its intended deployment across Meta’s suite of applications, including Facebook, Instagram, WhatsApp, and Threads, as well as business tools, aims to enhance user engagement and advertising effectiveness, ultimately driving top-line revenue growth. Meta is also actively consolidating its various recommendation engine models with the overarching objective of delivering advertisements that are most likely to elicit user action, such as making a purchase, thus commanding higher advertiser spend. A compelling illustration of this is Threads, the text-based application linked to Instagram, which launched in July 2023. Last quarter, Threads experienced a 20% increase in average time spent per user, largely attributed to advancements in its recommendation optimization.
The formation of Muse Spark followed Meta’s strategic reorganization of its AI endeavors under the leadership of its new Chief AI Officer, Alexandr Wang, formerly the CEO of Scale AI. Wang is among the distinguished AI researchers recruited by Meta during its significant talent acquisition drive last year. Muse Spark also positions Meta to contend with established AI leaders such as OpenAI and Google. Analysts at Cantor Fitzgerald believe Meta is still in the nascent stages of unlocking the full value potential of LLMs. “Over the next few quarters, we expect META to leverage Muse Spark to deploy LLM’s reasoning capabilities to improve engagement and monetization of the platform across various apps and services,” they stated in a research report on April 11th. Morgan Stanley further asserts that Meta’s “visibility on forward growth from its core investments remains high,” with a significant future catalyst expected in 2027 through the application of LLMs to analyze Meta’s extensive data assets.
As a consumer-facing entity with demonstrable experience in deploying LLMs, albeit with ongoing validation required for Muse Spark, the model has the potential to further refine Meta’s advertising performance. The most substantial AI monetization opportunity through Muse Spark lies in its adoption by enterprise clients. While MoffettNathanson views Meta’s foray into the enterprise sector as “uncertain, and largely fantastical” at this juncture, they acknowledge it as one of the clearest pathways to monetize Meta’s massive AI investments through avenues such as subscriptions, AI agents, API access, and cloud services. Though OpenAI and Anthropic have already secured considerable market share in this domain, historical precedent suggests Meta is undeterred by competition when pursuing significant opportunities. The company will need to articulate a clear strategy for translating its frontier model, Muse Spark, into a credible enterprise business.
In parallel, another key factor influencing Meta’s stock performance is its management of escalating costs. The company is actively seeking to fund its ambitious infrastructure buildout with a leaner workforce. Last Thursday, Meta announced plans to eliminate approximately 8,000 jobs, representing about 10% of its workforce, commencing in May. Additionally, 6,000 open positions will be dissolved as resources are strategically reallocated towards AI development. Meta has been progressively reducing its payroll since late 2022, a move intended to redirect resources towards AI-related investments. “We’re doing this as part of our continued effort to run the company more efficiently and to allow us to offset the other investments we’re making,” Meta’s Chief People Officer, Janelle Gale, communicated in a staff memo. While workforce reductions are inherently challenging, Morgan Stanley has characterized these layoffs as a “bullish development” based on financial projections. A potential workforce reduction of 20% could result in annual savings ranging from $3 billion to $10 billion, or could boost the company’s 2027 earnings per share by as much as $1.
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