Meta’s AI Is Delivering but Comes With a Hefty Price Tag

Meta is now leaning on larger, more advanced artificial intelligence systems to decide what users see and when. These systems ingest longer user histories and interpret richer signals across video, text and interactions. They make predictions in real time. In place of narrower ranking models, Meta is deploying LLM-scale architectures that process longer interaction histories and more detailed content signals.

The results are showing up across both sides of the business. Engagement is higher. Ad conversion rates are higher, according to first quarter earnings.

From Better Recommendations to Better Ads

Meta’s recommendation systems now train on longer records of what each user watches, clicks and skips. The result: Same-day posts represent more than 30% of recommended reels on Facebook and Instagram, more than double the share from a year ago. Total video time on Facebook grew more than 8% globally in Q1, the largest quarterly gain in four years from the first quarter earnings call.

The same logic applies to ads. Meta built a system that identifies which ad requests are most likely to convert, then routes those to more powerful models at the moment of serving. In Q1, that approach drove a 1.6% increase in conversion rates for off-site campaigns. A separate improvement to landing page view ads drove more than a 6% increase in conversion rates.

“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,” CEO Mark Zuckerberg said on the earnings calls. “So that way we can show you more useful things for what you’re trying to accomplish.”

More than 8 million advertisers now use at least one of Meta’s AI creative tools. Those using the video generation tool saw more than 3% higher conversion rates in tests. The Meta AI Business Assistant, rolled out to all eligible advertisers, is resolving common account issues at a 20% higher rate than before.

Agents at Scale

Meta’s business AI, available on WhatsApp and Messenger, handled 10 million conversations per week in Q1, up from 1 million at the start of the year. The company is expanding to more countries in Q2.

Muse Spark, Meta’s first model from its in-house AI lab, launched in Q1. It now powers Meta AI across all apps and the standalone Meta AI app. Sessions per user grew double digits following the rollout. More advanced models are in training.

Meta also launched Meta Ads AI Connectors in open beta, letting advertisers link their ad accounts to external AI agents for campaign management and optimization.

Where the Business Is Shifting

Ad impressions grew 19% year over year in Q1. The average price per ad rose 12%, driven by better ad performance, improved macro conditions, and currency tailwinds. Family of apps ad revenue reached $55 billion, up 33%.

The value optimization suite, which steers ad spend toward higher-value conversions rather than volume, now runs at an annual revenue run rate above $20 billion, more than doubling year over year. Partnerships ads, which lets creators tag and earn commissions on products in their posts, reached a $10 billion revenue run rate in Q1, also more than doubling year over year.

Reality Labs revenue was $402 million, down 2% year over year. Quest headset sales fell; AI glasses growth partially offset the decline. Daily users of AI glasses tripled year over year. More than 500 million users on each of Facebook and Instagram watch AI-translated videos weekly.

Family daily active people reached 3.56 billion in March, down slightly from December due to internet outages in Iran and a WhatsApp block in Russia. Growth would have been positive quarter over quarter without those disruptions.

What Else Stood Out

• Zuckerberg outlined Meta’s long-term AI vision on the call, framing personal superintelligence as the company’s primary product goal. “My view is that human progress has always been driven by people pursuing their individual aspirations,” he said.
• Meta raised full-year capex guidance to $125 billion to $145 billion, up from $115 billion to $135 billion, citing higher memory pricing and additional data center capacity. The company said it has consistently underestimated its compute needs.
• WhatsApp paid messaging and subscriptions drove family of apps other revenue to $885 million, up 74% year over year. Business AI expanded to small and medium businesses across Latin America and Indonesia during the quarter.
• Ray-Ban Meta released a new optics line designed for all-day wear in Q1, with sales shifting toward the latest generation as buyers respond to improved battery life and video resolution.
• Meta’s contractual commitments stepped up by $107 billion in Q1, driven by multiyear cloud deals and infrastructure purchase agreements intended to secure capacity through 2027.

Topline Results and Outlook

Q1 2026 total revenue was $56.3 billion, up 33% year over year, or 29% on a constant currency basis. Family of apps revenue was $55.9 billion, up 33%. Operating income was $22.9 billion, a 41% operating margin. Net income was $26.8 billion, or $10.44 per share, including an $8.3 billion tax benefit. Capital expenditures were $19.8 billion. Free cash flow was $12.4 billion. Meta held $81.2 billion in cash and marketable securities at quarter-end.