META's 2Q26 results show continued strengthening of AI investment and advertising monetization

Overview

This report provides a read-through commentary on META's 2Q26 results as part of Nomura's Global AI Trend Tracker. META announced its 2Q26 results after the US market close on July 30, 2026, followed by an analyst briefing. Management focused on AI products and services, measures to improve monetization efficiency, and enhancements to user engagement. The report's core focus is not assigning an investment rating to META, but deriving the demand implications for China's AI hardware supply chain from META's AI capital expenditure and advertising monetization progress.

Core views

META continues to increase investment in large language models, generative AI applications, servers, data centers, and network infrastructure. Management maintained its high 2026E capital expenditure range and believes the margin from selling “Intelligence” will be significantly higher than that from directly selling “Compute,” indicating that the company will continue converting computing power into AI product and advertising monetization capabilities. Accordingly, Nomura believes AI infrastructure demand is sustainable and favors beneficiaries such as Zhongji InnoLight and Shengyi Technology.

Analysis framework

The report adopts an earnings read-through approach: first reviewing META's 2Q26 revenue, earnings, Reality Labs, and capital expenditure performance; then analyzing the commercialization progress of AI advertising tools, generative models, subscription products, and data center partnerships; and finally mapping these developments to upstream supply-chain opportunities in optical modules, PCB/CCL, and related areas.

Methodology notes

• earnings_readthroughAI capital expenditure and supply-chain read-through

  Assess upstream hardware demand through the capital expenditure of cloud and internet giants, AI product deployment, and data center construction.

  META's 2026E capital expenditure remains at USD130-145bn, while 2Q26 capital expenditure increased 82.1% year on year, indicating continued expansion in investment in AI servers, data centers, and network infrastructure. This supports demand for optical modules, PCB/CCL, and related components.

• Valuation methodsRelative valuation method

  Derive target prices using forecast EPS and industry comparable price-to-earnings multiples.

  Zhongji InnoLight's target price of CNY1,325.00 is based on 20x 2027F EPS of CNY66.06; Shengyi Technology's target price of CNY195.00 is based on 43x 2027F EPS of CNY4.51.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• META PLATFORMS INC (US.META)

  The research subject company and source of the 2Q26 results and AI capital expenditure read-through

  Strengths

  Revenue increased 28.0% year on year, adoption of AI advertising tools improved, generative models have entered the advertising retrieval system, and Advantage+ ARR exceeded USD75bn.

  Weaknesses

  2Q26 earnings declined 13.6% year on year and were below consensus; high capital expenditure may weigh on near-term profit performance.

  Comparison

  Management stated that, in dollar terms, Meta's advertising revenue growth was faster year on year than that of other advertising businesses that have reported.

  Risks

  There is limited guidance on FY27E capital expenditure, and uncertainty remains around returns on high capital expenditure, the pace of AI commercialization, and macro advertising demand.

• Zhongji InnoLight (300308 CH)

  A beneficiary of AI data center networking and optical-module demand

  Strengths

  Nomura rates it Buy with a target price of CNY1,325.00; as a global optical-module leader, it benefits from AI infrastructure investment by internet giants such as META.

  Weaknesses

  Sensitive to demand for high-end optical modules, product upgrades, and the pace of capital expenditure by global customers.

  Comparison

  The target price is based on 20x 2027F EPS, in line with the median of the P/E range for China's A-share technology/electronic components industry in WIND.

  Risks

  High-end optical-module demand may be weaker than expected; competition in 400G and 800G is intense; upgrades to 800G/1.6T products may be slower than expected; and intensified price competition could affect exports.

• Shengyi Technology (600183 CH)

  A beneficiary of the PCB/CCL supply chain for AI servers and networking equipment

  Strengths

  Nomura rates it Buy with a target price of CNY195.00; as a major PCB/CCL supplier, the company may benefit from expansion in AI servers, data centers, and network infrastructure.

  Weaknesses

  Affected by fluctuations in downstream PCB demand from 5G, servers, automotive electronics, and other sectors, as well as CCL competition.

  Comparison

  The target price is based on 43x 2027F EPS of CNY4.51, consistent with a 43% FY26-28F earnings CAGR.

  Risks

  Downstream PCB demand may be weaker than expected, while intensified competition in the CCL market could pressure margins.

Key data

• META 2Q26 revenue growth28.0% y-y1% above the Bloomberg consensus.
• META 2Q26 earnings growth-13.6% y-y14% below consensus.
• 3Q26E revenue guidanceUSD61-64bnManagement expects foreign exchange to present an approximately one-percentage-point headwind to year-on-year growth.
• Reality Labs 2Q26 revenueUSD431mnUp 16% year on year, driven by growth in AI Glasses revenue.
• 2Q26 capital expenditureUSD30.1bnOn a PP&E purchases basis, up 82.1% year on year and 58.5% quarter on quarter.
• 2Q26 capital expenditure including finance lease principal paymentsUSD31.1bnDriven by investment in servers, data centers, and network infrastructure.
• 2026E capital expenditure guidanceUSD130-145bnIncluding finance lease principal payments, narrowed from the previous USD125-145bn range.
• Usage of Meta AI advertising creative tools9mn small businessesNine million small businesses on the platform already use at least one Meta AI advertising creative tool.
• Advantage+ ARRover USD75bnAdvantage+'s end-to-end solution reached over USD75bn in ARR this quarter.
• El Paso data center partnership1 gigawattMeta and BlackRock established a strategic joint venture to develop a 1GW data center in El Paso, Texas.

Impact & implications

The earnings read-through reinforces the view that AI infrastructure demand will continue to grow. META's advertising business continues to deliver high growth, with AI tools and generative models improving advertising efficiency. At the same time, the company is maintaining its hyperscale capital expenditure plan, suggesting that servers, data centers, networking equipment, optical modules, and the PCB/CCL chain may continue to benefit. However, Nomura does not rate META itself; the investment implications primarily relate to Chinese AI hardware supply-chain names.

Risks

• META's high capital expenditure may continue to weigh on profits and free cash flow in the short term.
• Information on FY27E capital expenditure guidance is limited, and uncertainty remains regarding future investment intensity.
• If the commercialization progress of AI advertising and personal agents falls short of expectations, expectations for returns on capital expenditure could weaken.
• High-end optical-module demand, 400G/800G competition, 800G/1.6T upgrades, and price competition are key downside risks for Zhongji InnoLight.
• Downstream PCB demand and intensified competition in the CCL market are key downside risks for Shengyi Technology.

What to watch

• Whether META's 3Q26E revenue falls within the USD61-64bn guidance range.
• Whether 2026E capital expenditure remains within the USD130-145bn range, as well as subsequent guidance for FY27E capital expenditure.
• The continued growth of AI advertising creative tools, generative advertising retrieval models, and Advantage+ ARR.
• The tiered pricing and user adoption of the Meta One subscription product.
• Progress on the El Paso 1GW data center project and its impact on demand for servers, networking equipment, optical modules, and PCB/CCL.