NEW YORK – Meta Platforms chief executive Mark Zuckerberg said on Wednesday that artificial intelligence (AI) was helping the company boost traffic to Facebook and Instagram and earn more in ad sales, as it forecast quarterly revenue well above analyst expectations.

Meta shares surged 12 per cent in after-hours trading, adding more than US$50 billion (S$66.8 billion) to its market value and continuing a rally in tech shares that started after Google parent Alphabet and Microsoft posted strong results on Tuesday.

Meta narrowed its cost outlook range for the year, saying expenses could be less than the company forecast in March, and also beat expectations for first-quarter profit and revenue, which rose for the first time in nearly a year.

The company, which has been slow to adopt AI-friendly hardware and software systems for its main business, has carried out several expensive overhauls to bolster its core business, including a massive project to upgrade AI capacity.

“At this point, we are no longer behind in building up our AI infrastructure,” Mr Zuckerberg said on a conference call. “And to the contrary, we now have the capacity to do leading work in this space at scale.”

AI recommendations increased time spent on Instagram by 24 per cent in the January-to-March quarter, Meta said.

“I think similar to Alphabet, a lot of Meta’s AI investments have gone into the advertiser side,” said Mr James Cordwell, analyst at Atlantic Equities.

“So as a consumer, we are maybe not seeing the fruits of its labour in that area, but it certainly seems as if it is able to use more advanced algorithms to maintain a certain level of ad targeting.”

Meta has also kicked off an aggressive cost-cutting drive, with plans to eliminate 21,000 jobs and flatten its middle-management structure as it works towards Mr Zuckerberg’s goal of turning 2023 into the “year of efficiency”.

The results indicated that the austerity drive was “off to a stronger-than-expected start for Meta”, said Insider Intelligence principal analyst Debra Aho Williamson.

“In this economic environment – and after the disaster that was 2022 – 3 per cent year-over-year revenue growth is an accomplishment. Meta’s strong guidance for second-quarter revenue is another indicator that the company may be starting to come out of the woods,” she said.

The social media giant faced a bruising 2022 as a pandemic-era e-commerce boom sputtered, while rivals like TikTok captured young users and Apple’s privacy updates cut access to the user data around which it built its ad business.

Cost control

Spending on the AI retooling has spiked the company’s capital expenditures, which came in slightly under expectations at US$7.1 billion for the quarter. Analysts had forecast US$7.2 billion in capital expenditures in the quarter, based on the company’s annual forecast of US$30 billion to US$33 billion, which it kept unchanged.

The company left open the possibility that it could increase capital expenditures as it builds products for generative AI, an emerging technology that can craft human-like writing, art and other content.

“Zuckerberg is well aware that his spending habits are being watched very carefully, and any renewed efforts to shift the budget to untested areas will not go down well,” said Ms Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown.

“That said, it is very hard to penny-pinch your way to the top, leaving Meta walking a very fine line between keeping the lights on and making the future bright enough to excite investors.”

Meta said it continued to expect operating losses in its metaverse-oriented Reality Labs unit to increase in 2023. The company had been investing billions of dollars into the unit, which lost US$13.7 billion last year.

Mr Zuckerberg said he remained committed to the investments.

“A narrative has developed that we are somehow moving away from focusing on the metaverse vision. I just want to say upfront: That is not accurate,” he said. “We have been focusing on both AI and the metaverse for years now, and we will continue to focus on both.”

Net profit for the first three months of the year fell to US$2.20 per share from US$2.72 a year earlier, but beat expectations of US$2.03 a share.

Revenue for the first quarter rose 3 per cent to US$28.65 billion, beating an average estimate of US$27.66 billion. REUTERS