Meta rallies as AI-powered ad sales drive ‘monster’ forecast

Meta shares surged nearly 8% on Thursday as a rosy revenue forecast showed that artificial intelligence was helping the social media giant boost engagement and ad sales even in an uncertain economy.

The Facebook (NASDAQ:META) owner was set to add about $60 billion to its market value, based on premarket movements, after strong second-quarter earnings encouraged 16 analysts to lift their target price on a stock that has already more than doubled this year.

“Meta (is) in a class-of-their-own in digital ads,” said Mark Shmulik of Bernstein, adding that its “monster guidance blew the doors off with an expected growth rate of +15-24% — numbers investors were hoping to maybe see as early as Q4.”

The 12% rise in ad revenue in the second quarter also surpassed the 3% growth seen at Alphabet-owned Google, thanks to continued engagement growth and improving monetization of Reels, a short-form video format that is Meta’s answer to TikTok.

CEO Mark Zuckerberg said Reels now had an annual revenue run rate exceeding $10 billion, up from $3 billion last fall.

“Advertisers are gaining confidence in Meta’s enhanced and AI-powered campaign planning and measurement capabilities, and spending more. Unsurprisingly, Reels monetization keeps improving,” said Morningstar analyst Ali Mogharabi.

The positive analyst view reinforces how a focus on cost cuts and higher engagement through AI has helped Meta turn into a Wall Street darling this year after being derided for much of 2022 for its hefty spending on the ambitious metaverse.

Analysts have a median price target $342.50 on Meta, which represents an upside of nearly 15% to its stock’s last close.

The company has 12-month forward price-to-earnings ratio of 21.28, higher than Alphabet (NASDAQ:GOOGL)’s 20.47 and the industry median of 15.18.