Meta Earnings look-ahead: Ad business and AI to be the catalyst for the quarter
Justin Sullivan/Getty Images News

With Meta Platforms Inc (NASDAQ:META) reporting its second-quarter results on Wednesday, investors will closely watch for the recovery in its advertising business as well as the developments around its artificial intelligence (AI) initiatives.
The social media giant is expected to post a more than 7% rise in revenue, its fastest pace of growth in the last six quarters, while Earnings Per Share (EPS) is expected to be $2.89, implying a 17.5% year-over-year rise.
Major chunk of Metaâs revenue comes from its ad sales. After facing pressure last year, analysts are expecting the companyâs ad sales to show signs of stability and maintain a positive growth, thanks to a gradual recovery in the digital advertising market.
According to research firm Insider Intelligence, US digital ad spend will grow by double digits next year at 11.2%, following this yearâs 7.8% growth rate.
The enthusiasm over AI is a bright spot for Meta, which is already one of the front runners in the space along with tech behemoths including Microsoft (MSFT) and Alphabet Incâs (GOOG) Google.
To compete with Microsoft and Google, Mark Zuckerbergâs Meta released a commercial version of its AI model, enabling startups and businesses to have a low-cost alternative than those sold by Google and OpenAI.
New Street Analyst Dan Salmon noted that he is hearing very positive feedback on the company's AI efforts.
SA Analyst Jamie Galvin assigns hold rating as the current market price have already priced in a lot of success already.
Moreover, Metaâs recently launched Twitter-rival text app, Threads, which piled up nearly 100M users over its first three days, is also expected to boost revenue by attracting users from competitors.
Over the last one year, Meta has beaten both revenue and EPS estimates 75% of the time and has beaten revenue estimates 75% of the time.
While Seeking Alpha analysts and Wall Street rated the stock as "buy", Seeking Alphaâs Quant Ratings is considering it a "Strong Buy" with a rating of 4.99. The stock has more than doubled so far this year, recovering from last yearâs tech sell-off.
Over the last 3 months, EPS estimates have been revised upward 20 times, compared to two downward revisions, while revenue estimates have seen 36 upward revisions with no downward moves.

The California-based company, which has a market valuation of over $740 billion, has the highest score in the Communications services sector, with a Quant rating of 4.99 out of 5. High scores for profitability and stock performance boosted the ratings.