How Meta is thinking about AI models, ROI, CapEx

Meta's first quarter results handily topped expectations and came with the usual rise in capital expenditures. The company is expecting $58 billion to $61 billion in second quarter revenue as the core business remains strong and funds AI superintelligence dreams.

However, the more interesting takeaways about Meta's strategy, which is different than other technology giants because it spends heavily on AI, but monetizes primarily through its ad business. Meta isn't selling cloud capacity so the line between AI spending and direct revenue isn't as direct as Amazon, Alphabet and Microsoft.

Here's a look at the takeaways from Meta's first quarter.

Models starting with Muse Spark

Zuckerberg touted the launch of Muse Spark, the first in a series of AI models, and said the company has already seen stronger engagement in Meta AI. The plan is to use Muse Spark to develop more products. Zuckerberg said the model strategy is decidedly focused on the consumer.

"Our goal is not just to deliver Meta AI as an assistant, but to deliver agents that can understand your goals and then workday and night to help you achieve them. My view of AI is very different from many others in the industry. I hear a lot of people out there talk about how AI is going to replace people. Instead, I think that AI is going to amplify people's ability to do what you want, whether that's to improve your health, your learning, your relationships, your ability to achieve your personal career goals and more."

Zuckerberg did add that Meta is building a business agent that will help enterprises across the spectrum use Meta's tools more effectively.

Meta is currently training more intelligent and capable models now, he said. "More details will become clear over the coming months," added Zuckerberg.

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Zuckerberg did drop a few hints about future model direction. "You're not going to have leading models in the future if your models can't improve themselves, right? So, you're getting to a point where today, the models are still able to learn from people and then I think at some point, the models will have to improve themselves. And that's how the growth is going to -- an improvement in the models is going to happen," he said.

The ROI for AI is largely internal

Meta doesn't sell AI services to other companies. Instead, Zuckerberg is focused on using Spark to improve its recommendation systems and core businesses in Facebook, Instagram and ads. Zuckerberg said:

"For the first time in Meta's history, we're going to be able to develop a first principles understanding of what you care about and what each piece of content in our system is about so that way we can show you more useful things for what you're trying to accomplish. And we'll also be able to create personalized content specifically for people to help you achieve your goals as well.

We are seeing an increasing return on the amount that we can improve engagement for people and value for advertisers. This encourages us to continue investing heavily in what we expect will provide increasing value over the coming years as well."

AI investments are judged on building new products and experiences with AI as well as how the company is scaling models.

"Over the coming quarters, we're just going to be tracking how do our next set of training runs go. How do our products scale? How excited are we about the products in the pipeline? Well, right now, we're very excited. And then we'll also ramp up monetization over that period of time as well," said Zuckerberg.

CapEx is surging

Meta said its capital expenditures revolve around compute and memory is blowing the budget. The company is also procuring hyperscaler capacity, building its own custom chips and ramping data centers.

"One of the primary goals of our Meta Compute initiative is to lead the industry in efficiency of building compute, and we expect that will be a strategic advantage over time," said Zuckerberg.

CFO Susan Li said Meta has agreed to $107 billion in multi-year cloud deals. The company plans to spend $125 billion to $145 billion on capital expenditures in 2026.

Li said 2027 capital expenditures will be higher, but it's unclear by how much. She said:

"We are undergoing a very dynamic planning process ourselves as we're working through what our capacity needs will be over the coming years. Our experience so far has been that we have continued to underestimate our compute needs even as we have been ramping capacity significantly. There are very compelling internal use cases. So, our expectation is that compute will become even more central to the business going forward. And it will be critical to determine the quality of the models we develop, the types of products we can introduce, and how productive we can be as an organization."

AI will mean smaller teams

Zuckerberg said Meta's use of AI agents means it will need smaller teams. He said:

"We are seeing more and more examples where one or two people are building something in a week that would have previously taken dozens of people months. And I want to make sure that Meta is the best place in the world for these types of people to come and make an impact.

We're building the next evolution of our company around these people. And there's a lot that we can do to enable this: building the best infrastructure for creating and delivering products at scale, streamlining our teams so they aren't bigger than they need to be, recognizing and rewarding the people who are having outsized impacts and setting ourselves up to try many more ideas and take on many new projects in the future."

And yes, Meta is going to reduce its headcount.

Li said that Meta doesn't know what the optimal size of the company will be. "I think there's a lot of change right now with AI capabilities advancing rapidly. We're very focused on leveraging AI tools to substantially increase our productivity, and we're seeing that reflected in the accelerating output from our engineers," said Li. "We will be continuously evaluating how we're structured just to make sure we're best set up to deliver against our priorities over the coming years."