Meta-platforms (NASDAQ:META) stock rose 14% last week, beating the 4% return for the S&P500This strong performance was driven by a positive market reaction to Meta’s earnings report, which highlighted second-quarter results in its core business, advertising.

The stock’s recent surge marks a sharp turnaround from the previous quarter, when concerns about Meta’s AI investments led to a sharp decline in the stock price. The sharp rise reflects growing investor optimism about Meta’s ability to execute on its AI initiatives while continuing to deliver strong results in its core business areas.

Furthermore, this recovery suggests that the market is beginning to accept the financial value of Meta’s investments in AI. These are beginning to deliver tangible benefits. Furthermore, the market’s positive reaction to Meta’s Q2 results suggests that Meta could outperform its Magnificent 7 competitors, as alphabet (NASDAQ:GOOG:GOOGLE) And NVIDIA (NASDAQ:NVDA) and could extend its uptrend. This outperformance will likely attract continued investor interest, which could support the stock’s momentum, making Meta shares a strong buy.

Strength of advertising and user engagement

Meta’s core business, advertising, remains a key driver of its performance. The business contributed $38.3 billion in revenue in the quarter, a year-on-year increase of 22%. Given the challenging macroeconomic conditions, this growth is critical and demonstrates that Meta’s advertising platforms are delivering value to advertisers. The company gradually leveraged its huge user base. The user base now includes 3.27 billion daily active users across all apps, driving engagement and advertising revenue growth.

In addition, the strong performance of Meta’s advertising business is strongly underscored by the 10% increase in ad impressions. The average cost per ad also increased by 10%. These metrics underscore the precision of Meta’s ad targeting and delivery mechanisms. MEta saw growth in advertising revenue across various geographic regions (particularly Asia Pacific and Europe), underscoring the global reach and attractiveness of Meta’s platforms for advertisers in different markets.

The company is focused on improving the quality of ad recommendations and increasing user engagement through AI-driven advancements, which has been critical to maintaining the meta stock’s progressive market valuation in the digital advertising space.

Huge user base and engagement

Meta’s user base continues to grow. In June, the app family’s daily users averaged 3.27 billion, up 7% year-on-year. This represents a significant increase in user engagement, driven by the company’s efforts to improve the user experience across all its platforms. Growth is robust in regions such as Asia Pacific and Europe, where ad revenue increased 33% and 26%, respectively, underscoring Meta’s global appeal.

In addition, the company has been very successful in acquiring and retaining users, especially young adults, as evidenced by the growing popularity of platforms such as WhatsApp, Instagram and Threads. For example, WhatsApp now boasts over 100 million monthly active users in the US, while Threads has nearly 200 million monthly active users worldwide. These platforms are becoming increasingly important to Meta’s entire ecosystem, contributing to higher user engagement and offering new monetization opportunities. The focus on improving the user experience through AI-driven content recommendations has been largely responsible for the high price growth of Meta’s stock.

AI investments and growth potential

The company plans to invest $37 billion to $40 billion in capital expenditures this year, and its aggressive investments in AI are beginning to bear fruit. These significant advances have driven AI-driven content recommendations and ad targeting. For example, the company has introduced a full-screen video player. Likewise, a unified video recommendation service for Facebook Reels integrates longer videos and live content into a single experience. This initiative has already increased engagement on Facebook Reels, suggesting further growth potential as Meta continues to refine its AI models.

Finally, Meta’s advancements in AI extend beyond its core business. They also include new experiences and products such as Meta AI and AI Studio. These platforms allow users and businesses to create personalized AI agents and provide new ways to interact with content and communities. The potential for widespread adoption of these AI-driven tools could significantly increase Meta’s revenue streams, particularly in the business messaging and creator economy segments. Finally, the company’s leadership in open source AI is reflected in the release of Llama 3.1, which positions Meta as a leader in the AI ​​industry and justifies a buy rating on the stock.

At the time of writing, Yiannis Zourmpanos held a long position in META. The opinions expressed in this article are those of the author and are subject to InvestorPlace.com’s publishing policies.

At the time of publication, the editor in charge held a long position in AAPL.