Is Meta’s AI spending working? The stock’s next move depends on answer
Shares of Meta Platforms are rebounding from a doldrums earlier this year, when investors shunned the social media giant’s big investment in artificial intelligence. Wednesday’s earnings will determine whether this recovery continues. The stakes are high: Meta is in the midst of one of the most aggressive AI developments of all megacaps. In recent weeks, Facebook and Instagram’s parent company has planned investments and signed major computing commitments spanning cloud infrastructure and custom chips; It’s all part of the company’s plan to spend as much as $169 billion this year, most of which will go to artificial intelligence. Investors are increasingly focusing on whether all this spending has paid off yet. So far, the market doesn’t quite know how to digest Meta’s ambitious plans. The stock first jumped after the quarter on Jan. 28, when management predicted 2026 operating and capital spending would be above expectations and account for nearly all of 2026 productivity and revenue growth. For a moment, investors rejoiced and the stock closed at $738. Then the market cooled down. Shares fell roughly 29% in two months, falling to $525 in late March. But shares have risen 28% since then, finishing Tuesday at $671. While some of that gain was due to the broader market recovering from the Iran war trough on March 30, investors also appeared optimistic about a series of announced investments aimed at boosting Meta’s computing capacity. The launch of a new AI model also helped sentiment. The stock is up nearly 2% on the year. On Friday, Meta announced a multibillion-dollar partnership with Amazon Web Services to distribute AWS Graviton processors at scale, making Meta one of the world’s largest customers of Amazon’s in-house chips. The processors will support workloads tied to developing the core advertising business. Earlier this month, Meta committed $21 billion to AI cloud infrastructure company CoreWeave, adding to an earlier $14.2 billion deal. In March, the company signed a deal with Dutch cloud provider Nebius worth up to $27 billion. The company is also planning four customer silicon options of its own, while expanding its partnership to buy Broadcom’s next-generation AI chips. META YTD Mount Meta’s stock performance in 2026. In a well-timed note dated March 29, Morgan Stanley analysts argued that the market was too focused on the cost of AI and not enough on returns, noting that Meta’s business was still growing strongly even as shares became cheaper. “We believe in interaction [time spent] is accelerating [off of large numbers]This gives META more time and interaction to make money; “Given the increase in video-based content, we believe the time spent on growth is also high quality and monetizable,” analysts wrote at the time. Jim Cramer struck a similar tone during the April Monthly Meeting, telling members: “I don’t like betting against Mark [Zuckerberg] When it comes to money.” He added: “You’re buying a call about the incredible talent that Zuckerberg has. We thought this was a negative situation. It’s no longer the reason for Muse Spark, its new flagship model designed for personal intelligence.” Towards the quarter, investors want to see more evidence that the strategy is translating into stronger growth in its advertising business, better products, and higher profits. The vast majority of Meta’s revenue comes from ads. Investors, including those of us in the club, will want to see more details about the effectiveness of Meta’s AI-powered advertising tools, which have been game changers so far, like Advantage+, AI-generated ads, and automation. Reels is a big beneficiary Instagram Reels watch time in the U.S. is up 30% year over year, while Facebook video watch time is up double digits. Muse Spark, Meta’s first project from the newly formed Meta Super Intelligence Labs, could be the next chapter in the company’s ad growth story, helping investors close 6.5% higher than they initially saw after Meta launched Muse Spark, with investors excited that it could improve its core ad model and justify all its AI spending. Masters are a core part of the ad growth strategy as intelligence models predict what content people want to see and what products they care about. A Masters is a multi-modal reasoning model that can understand language, recognize patterns, reason through prompts, and topics and business tools. Meta needs to make its apps more engaging and its ads more effective, which will help the company accelerate its revenue growth. There are, and the company is working on combining them. Advertisers will be willing to spend more if Meta delivers the ad that will likely lead to user action, such as purchasing a product. “Over the next few quarters, we expect META to use LLM’s reasoning capabilities to increase engagement and monetization of the platform across a variety of applications and services,” Morgan Stanley said, adding that Meta “has high visibility into forward growth from its core investments” and that “one of the next big keys” in 2027 will be the use of LLMs to analyze Meta’s leading data. A consumer-facing company with experience (albeit as yet unproven), the opportunity to monetize true AI through Muse Spark will be to drive LLM adoption by enterprise customers, MoffettNathanson said Meta’s entry into the enterprise market is “uncertain and largely fantastical” at this stage, but he sees the organization as one of the clearest ways to monetize Meta’s massive AI investments through areas like subscriptions, brokers, API access and cloud services, with OpenAI and Anthropic already a significant market in this space. share, but competition hasn’t stopped Meta from pursuing a big opportunity. Meanwhile, another catalyst for Meta’s shares is how it manages its rising costs. The company said last Thursday it plans to cut about 8,000 jobs, or about 10%. It will also eliminate 6,000 open positions as it reallocates resources to AI-related investments, said Janelle Gale, Meta’s chief people officer. “We’re doing so to run the company more efficiently and offset other investments we’ve made,” he said in a memo to staff announcing the news. In the welcome news, Morgan Stanley called the workforce reduction an “emerging development” based on the math. A potential 20% workforce reduction could save $3 billion to $10 billion annually or add $1 to the company’s 2027 earnings per share (Jim Cramer’s Charitable Trust is long META. See here for list.) When you subscribe to the CNBC Investing Club with Jim Cramer, you will receive a trade alert after Jim sends a trade alert before buying or selling a stock in his charitable foundation’s portfolio. After Jim discusses a stock on CNBC TV, you will wait 72 hours before executing the trade. WHETHER A SECURE OBLIGATION OR DUTY EXISTS OR HAS BEEN CREATED BY RECEIVING THE INFORMATION, A PARTICULAR RESULT OR PROFIT CANNOT BE GUARANTEED.
