Meta stock rallies as rosy forecast shows AI helped boost ad sales

globalnews.ca:

Meta shares surged nearly 10 per cent 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 owner was set to add over $70 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.”

While Meta’s 12 per cent rise in second-quarter ad revenue surpassed the three per cent growth at Alphabet’s Google, earnings reports from both the digital ad behemoths reinforced a recovery in the sector.

Meta and Google are on track to add more than $170 billion to their combined market capitalization – a figure that is more than the individual market values of about 90% of the companies in the S&P 500 index.

Smaller rival Snap, however, disappointed on ad sales as advertisers stick to tried and true platforms.

Meta’s results were also supported by improving monetization of Reels, a short-form video format that is the company’s answer to TikTok. CEO Mark Zuckerberg said Reels now has 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