Meta Platforms (META) Q2 Earnings Preview: Advertising vs. AI Investments

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Meta Platforms (META) is set to report its second-quarter 2025 earnings after the market closes on Wednesday, July 30, 2025.

What to Expect?

The market expects strong financial results, driven by growth in the company's digital advertising business, boosted by improvements in artificial intelligence (AI). For Q2 2025, revenue is expected to be between $42.5 billion and $45.5 billion, as the company predicted. Earnings per share (EPS) are expected to rise to $5.83, a 12.98% increase from last year.

While revenue projections look strong, investors are closely watching spending and economic challenges. The company plans to spend heavily on AI infrastructure, with capital expenses for 2025 estimated between $64 billion and $72 billion. At the same time, Meta's Reality Labs, its metaverse project, is expected to lose even more money, with losses growing to $5.35 billion in Q2.

Source: Created by Zain Vawda, Google Gemini

On top of internal challenges, external factors like global tariffs, ongoing US-China trade tensions, and stricter regulations in the European Union could impact Meta's ad revenue and operations.

Meta has a strong track record of beating analyst expectations, surprising by an average of 17.3% over the last four quarters. This makes it likely that the company could deliver another positive surprise in its Q2 2025 report.

Analysts are becoming more optimistic about Meta, with many raising their price targets. Out of 71 analysts, 63 rate the stock as a 'Buy' or 'Strong Buy.' The median target price is $750, suggesting a 5% increase from its July 28, 2025, closing price of $712. This shows strong confidence in Meta's business and strategy.

Key Areas to Focus On

Meta’s advertising business is expected to drive strong Q2 2025 results, with ad revenue projected at $43.94 billion, up 14.6% from last year. AI-powered tools like ad recommendations and campaign automation are boosting advertiser demand, with over 4 million advertisers using Advantage+ campaigns, reporting a 22% improvement in returns. The global digital ad market, expected to hit $650 billion in 2025, provides a favorable backdrop, with Meta holding a 21.6% market share.

Meta is heavily investing in AI, with 2025 capital expenses rising to $64-72 billion for infrastructure and talent. While this pressures profit margins, Meta aims to show these investments will drive long-term growth. Its AI assistant now has 1 billion users, and new monetization options are being explored.

Source: Created by Zain Vawda, Google Gemini

Reality Labs, Meta’s VR/AR division, continues to lose money, with Q2 losses expected at $5.35 billion. However, products like Ray-Ban smart glasses show promise, and Meta sees this as a long-term bet on future platforms.

Source: Created by Zain Vawda, Google Gemini

WhatsApp, with 1.5 billion users, is a key focus for new revenue. Business tools and AI features could unlock $30-40 billion in potential revenue, diversifying Meta’s income beyond advertising. Investors await updates on these strategies during the earnings call.

External Concerns

US-China trade tensions pose a major challenge for Meta’s advertising revenue. Analysts predict these tariffs could cost Meta up to $7 billion in ad revenue for 2025, mainly due to reduced spending by Chinese e-commerce companies like Temu and Shein. Temu, for example, paused all US advertising in April. In 2024, Meta earned $18.35 billion from China, making it its second-largest revenue source after the US, despite not having active platforms in the country. A prolonged downturn could lead to a $23 billion revenue loss, cutting earnings by 25%.

Broader economic effects of tariffs are also concerning. With US tariffs at their highest since 1909, consumer costs have risen, reducing household spending power and slowing GDP growth. This could indirectly impact Meta as businesses cut ad budgets.

Meta is particularly exposed to advertisers affected by tariffs, as rising costs and supply chain issues force companies to scale back. These risks highlight the need for Meta to diversify its advertiser base and find ways to support impacted businesses. Investors will look for management’s plans to address these challenges during the Q2 earnings call.

Forward Outlook

The options market predicts Meta’s stock could move +/- 5.5% to 8.64% after earnings. Historically, the stock has risen 6.6% on average the day after earnings over the past 10 quarters.

However, concerns about heavy AI spending could dampen enthusiasm, even with strong results and need to be monitored.. After Q3 2024, despite beating estimates, the stock fell 4% due to worries about AI investment returns. To maintain investor confidence, Meta must clearly show how its AI spending will drive future profits and efficiency.

Meta’s stock valuation is high, trading at 26x forward earnings. Analysts project 2025 revenue of $183.5 billion, EPS of $24.12, and net income of $62.25 billion. AI remains a key focus, with significant spending planned for research and development. Meta also aims to grow free cash flow, building on record levels achieved in 2024.

Looking ahead, Meta has big opportunities to grow by monetizing WhatsApp through business messaging and AI tools, as well as expanding the user base of Meta AI. Success will depend on how well Meta balances its bold innovations and heavy investments with smart execution and handling external challenges.

The upcoming Q2 earnings call will be key to understanding if Meta can keep up its strong growth while managing these complex factors.

Source: Created by Zain Vawda, Google Gemini

Technical Analysis

From a technical standpoint, Meta shares are holding near the YTD highs at around the 718 mark.

There is a trendline break that may be about to materialize while the RSI period 14 has bounced off the 50 neutral level.

Both of these indicators hint at further upside heading into the earnings release.

Immediate support rests around the 704 mark before the 680 and 634 handles come into focus.

The upside is a bit more complicated. Immediate resistance rests at 733 before the YTD high at 747 comes into focus.

META Daily Chart, July 29, 2025

Source: TradingView

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