Burning money wisely, exorbitant poaching, sitting on AI "monetization tools"... Meta rebounds 40% from a low, approaching historical highs

When Zuckerberg announced a significant increase in AI investment, Wall Street voted with their feet, pushing Meta's stock price close to an all-time high, with the stock rising over 40% since its low in April.

As the AI race enters a heated phase, Meta chooses to speak with real money, raising its 2025 capital expenditure forecast to $72 billion, while data proves that Meta's "money-burning strategy" is effective, with the company's first-quarter return on investment reaching a record 31%.

Last week, Meta finalized a $14.3 billion investment in Scale AI and brought its founder, Alexandr Wang, on board. Additionally, compared to other tech giants, Meta has a unique advantage in AI commercialization—advertising.

Traders are clearly buying into this, with nearly 90% of analysts tracked by Bloomberg recommending buying Meta. Currently, Meta's stock price is just a step away from the average target price, with a stock valuation reaching 24.5 times expected earnings.

Money-Burning Strategy: AI Spending Soars, Investment Returns Reach Historic Highs

Meta's latest financial data breaks Wall Street's traditional perception: significantly increasing AI investment has not only not dragged down returns but has instead propelled the company's efficiency to unprecedented heights.

The company raised its 2025 capital expenditure forecast to $72 billion; however, the 31% return on invested capital in the first quarter set a historical record, more than double the rate when the company was mired in the metaverse in 2023. This contrast has led investors to reassess Meta's AI strategy.

Allen Bond, a portfolio manager at Jensen Investment Management, recently bought Meta stock for the first time in weeks, partly due to the company's aggressive spending on AI. He stated:

The scale of spending may be concerning, but we believe Meta can leverage AI to drive revenue growth and accelerate development.

Earlier this year, when concerns arose over the DeepSeek model, AI stocks like Nvidia faced significant setbacks. However, the latest earnings season has alleviated fears that large tech companies might cut back on expensive computing equipment, leading to renewed interest in AI-related stocks among traders.

ETFs tracking AI stocks, including Amazon, have risen 32% since the low on April 8, triggering a broad market rebound. During this period, the Global X Artificial Intelligence & Technology ETF outperformed the S&P 500 and Nasdaq 100, which rose approximately 20% and 27%, respectively.

Sky-High Poaching: $14.3 Billion Investment in Scale AI, 28-Year-Old CEO Directly Joins Headquarters

Last week, Meta finalized a $14.3 billion investment in Scale AI, this deal, if considered an acquisition, would become Meta's second-largest deal in history, following the $19 billion acquisition of WhatsApp in 2014. But this is not an acquisition—at least, that's not what Meta says. Despite the fact that this deal has all the characteristics of an acquisition: 28-year-old Scale AI founder Alexandr Wang will join Meta as an executive, responsible for operating an elite team building AI superintelligence, reporting directly to Mark Zuckerberg. Other Scale AI employees will also join Meta.

Meta has been trying to lure AI talent from Google and OpenAI with "seven-figure to nine-figure" compensation. This approach is not unique to Meta—Microsoft signed on the co-founder of Inflection AI, Alphabet hired the founder of Character.AI, and Amazon recruited the CEO of Adept AI.

There are two driving factors behind this "investment + talent transfer" model: first, large companies are eager to avoid being seen as making acquisitions, especially as judges are deeply considering whether Meta's early actions in acquiring Instagram and WhatsApp should be viewed as illegal. Second, mature large tech companies are facing an innovation dilemma brought on by their size—when a company with 77,000 employees needs to keep Wall Street satisfied, it struggles to act and take risks as quickly as a startup.

Advertising Business Moat: AI Becomes a Monetization Tool

Compared to other tech giants, Meta has a unique advantage in the commercialization of AI. The company's vast social media ecosystem provides a wealth of user data for AI algorithms, which is being transformed into precise advertising targeting capabilities and higher user engagement.

Meta is seeking to fully automate advertising creativity using AI technology. This is not just a technological upgrade but a fundamental transformation of the business model. New Street Research analyst Dan Salmon estimates that generative AI creative tools could boost Meta's annual advertising revenue growth rate by 1% to 2% over the next few years, with an increase of up to 4% by 2030.

More strategically, Meta is leveraging AI to optimize user data to enhance revenue, giving the company an edge in competition with Alphabet. Bond points out:

Meta is able to go on the offensive with AI, while Alphabet is on the defensive, worried about losing to AI services like ChatGPT in the lucrative search business.

This differentiated advantage is the core reason traders are optimistic about Meta. In an era where AI technology is maturing but monetization paths remain unclear, Meta has already demonstrated direct returns on AI investments, which is rare in the tech industry.

Although the stock price is nearing the average analyst target price, suggesting limited short-term upside, nearly 90% of Bloomberg-tracked analysts still recommend buying. Greg Halter, research director at Carnegie Investment Counsel, summarized: "Acquiring strong growth at a reasonably fair price is still within the buy range. Of course, such momentum won't last forever."