META (META) Q2 2025: AI Capex Surges $30B as Meta Scales Superintelligence Bet
Meta’s Q2 marked an inflection in AI investment, with capital expenditures up by approximately $30 billion year over year and a clear pivot toward building compute infrastructure for superintelligence. Management’s conviction in AI’s transformational impact is now visible in both hiring and multi-gigawatt data center expansion, even as core ad monetization and engagement remain robust. With forward guidance flagging a new era of expense growth, investors face a critical period of elevated capital risk and delayed AI monetization, but also the potential for Meta to define the next frontier of consumer and business technology.
Summary
- AI Investment Accelerates: Meta’s capital allocation decisively shifted to massive AI infrastructure and talent buildout.
- Core Monetization Remains Strong: Ad systems and engagement continue to deliver, supporting near-term financial health.
- Expense Growth Reframes Outlook: 2026 will see structurally higher costs as Meta ramps for superintelligence scale.
Performance Analysis
Meta delivered another quarter of double-digit revenue growth, driven by robust ad demand and rising engagement across its Family of Apps. Ad revenue growth was particularly pronounced in Europe and “Rest of World,” underpinned by gains in online commerce and improved ad performance from AI-driven systems. Impression growth accelerated, especially in Asia Pacific, as both time spent and ad load optimization contributed to volume. Average price per ad increased 9%, reflecting continued improvement in targeting and advertiser ROI.
Reality Labs revenue showed modest growth, with AI glasses sales offsetting lower Quest device sales. However, the segment remains deeply loss-making, as Meta continues to invest ahead of commercial adoption. Operating margin for the overall business remained strong at 43%, but management’s commentary makes clear that this is a high-water mark as the company enters a new investment cycle. Meta’s free cash flow and buyback activity remain robust, but the scale and duration of planned infrastructure and AI spend signal a strategic shift that will pressure near-term profitability.
- Engagement Tailwind: Video time spent on Instagram and Facebook rose more than 20% YoY, driving ad impression growth.
- AI-Driven Ad Conversion: New models delivered 5% more ad conversions on Instagram and 3% on Facebook, supporting higher ad pricing.
- Expense Mix Shift: R&D and infrastructure costs rose sharply, while G&A fell, reflecting a reprioritization toward technical talent and compute.
Meta’s capital allocation now overwhelmingly favors AI infrastructure, with 2025 capex guidance raised to $66–$72 billion and a similar trajectory expected for 2026. Investors should expect a period of elevated spending with delayed revenue realization from frontier AI initiatives.
Executive Commentary
"We have conviction that superintelligence is going to improve every aspect of what we do... We're building an elite, talent-dense team... and making all these investments because we have conviction that superintelligence is going to improve every aspect of what we do."
Mark Zuckerberg, Chief Executive Officer
"We expect infrastructure will be the single largest contributor to 2026 expense growth, driven primarily by a sharp acceleration in depreciation expense growth... We also expect a greater mix of our capex to be in shorter lived assets in 2025 and 2026 than it has been in prior years."
Susan Lee, Chief Financial Officer
Strategic Positioning
1. AI Infrastructure as Strategic Moat
Meta is aggressively converting capital into compute, with multi-gigawatt clusters like Prometheus and Hyperion planned to come online. This infrastructure is designed to give Meta’s AI research teams unmatched resources, supporting both internal product innovation and the pursuit of superintelligence. Management’s willingness to lead sector-wide capex signals a conviction that scale and speed in AI will determine long-term industry leadership.
2. Core Ads and Engagement Engine Still Delivers
AI-driven improvements to ad systems and content recommendations have materially lifted both conversion rates and user engagement, reinforcing Meta’s position as the dominant global digital advertising platform. Advantage Plus and generative AI tools are broadening adoption among both large and small advertisers, while new surfaces like Threads and WhatsApp offer incremental, though still nascent, monetization levers.
3. Reality Labs and AI Devices: Long-Term Optionality
Ray-Ban Meta glasses and new Oakley launches are showing traction, with supply struggling to keep up with demand for popular SKUs. Meta’s vision for AI-first wearable devices is taking shape, with management signaling that glasses will be the primary interface for personal superintelligence in the future. However, Reality Labs remains a high-burn, long-horizon bet, with commercial returns still years away.
4. Open Source and Safety Balancing Act
Meta remains committed to open sourcing leading AI models, but is increasingly selective as model scale and safety risks grow. Management flagged that not all frontier models will be shared, especially as superintelligence approaches, reflecting both competitive and regulatory considerations.
5. Capital Allocation and Shareholder Return
Buybacks and dividends continue, but the scale of AI and infrastructure investment will dominate capital allocation for the foreseeable future. Management is exploring external financing for data centers, but expects to fund the majority of spend internally, leveraging Meta’s balance sheet strength.
Key Considerations
Meta’s Q2 signals a structural pivot toward AI-first strategy, with implications for both near-term financials and long-term competitive positioning. Investors must weigh the durability of the core ads engine against the capital intensity and uncertain time-to-monetization of AI and hardware bets.
Key Considerations:
- Capex Velocity: Meta’s capital expenditures are now on par with the largest hyperscalers, with 2025–2026 representing an unprecedented investment cycle for the company.
- Expense Growth Trajectory: Operating expense growth will accelerate in 2026, driven by infrastructure depreciation and full-year compensation for new AI talent.
- AI Monetization Lag: Management does not expect generative AI to drive meaningful revenue in 2025 or 2026, creating a gap between spend and return.
- Regulatory Uncertainty: EU regulatory headwinds, especially around less personalized ads, could materially impact European revenue as soon as later this quarter.
- Shareholder Dilution Management: Buybacks are intended to offset dilution from stock-based compensation, but dilution risk will rise as technical talent hiring accelerates.
Risks
Meta faces material risks from regulatory actions in the EU, which could force changes to ad targeting and reduce revenue. The company’s AI and infrastructure investments are capital intensive with long payback periods, and a delay or shortfall in AI monetization could pressure margins and valuation. Competitive dynamics in AI and digital advertising remain intense, while the transition to new device form factors carries execution risk.
Forward Outlook
For Q3 2025, Meta guided to:
- Total revenue of $47.5 to $50.5 billion
For full-year 2025, management narrowed guidance:
- Total expenses of $114 to $118 billion (20–24% growth YoY)
- Capex of $66 to $72 billion (up ~$30 billion YoY at midpoint)
Management highlighted several factors that will shape the next 12–18 months:
- Infrastructure and technical talent will drive the bulk of expense growth
- 2026 expense and capex growth rates will exceed 2025 levels as AI investment ramps
Takeaways
Meta’s Q2 marks a strategic escalation in the race for AI leadership, with capital and talent commitments that will reshape its cost structure and risk profile. While the core ads business remains a cash engine, the company is entering a period of elevated investment and delayed monetization from its most ambitious bets.
- AI Infrastructure Is Now Meta’s Defining Investment: The scale and urgency of capex and hiring signal that Meta intends to lead in AI, not just participate.
- Core Monetization Remains Resilient: Ad system improvements and user engagement gains provide a financial buffer for the new investment cycle.
- Investors Should Watch for AI Monetization Signals: The timing and scale of returns from generative AI, business messaging, and device platforms will determine whether Meta’s pivot delivers on its promise.
Conclusion
Meta is all-in on AI, with Q2 2025 representing a turning point in both capital intensity and long-term ambition. While the core business continues to fund aggressive bets, the next two years will test the company’s ability to convert infrastructure and research into new products and revenue streams. Investors must navigate a period of high spend and uncertain payback, but the upside is Meta’s potential to set the pace for the next era of digital technology.
Industry Read-Through
Meta’s surge in AI capex and infrastructure buildout is a clear signal to hyperscalers, chipmakers, and cloud providers that the next phase of digital competition will be defined by compute scale and model quality. Digital advertising remains robust, but the bar for AI-driven performance is rising and will pressure smaller platforms to keep pace. Wearable AI devices and business messaging are emerging as new battlegrounds, with Meta’s early traction in glasses likely to spur further investment across the consumer tech landscape. The scale and urgency of Meta’s AI push will ripple across the sector, reshaping capital allocation priorities and intensifying the war for technical talent.