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Facebook and Instagram parent Meta ( META ) reports its second quarter earnings after the bell on Wednesday, and the company’s AI spending and advertising business performance are set to take center stage.

AI spending is a key measure for Wall Street as investors anxiously await a return on Big Tech’s investments in the technology. During its prior quarter, Meta CFO Susan Li raised the company’s full-year total expense estimate from between $94 billion and $99 billion to between $96 billion and $99 billion .

For the second quarter, Meta is expected to report earnings per share of $4.74 on revenue of $38.3 billion, according to analyst estimates compiled by Bloomberg. Meta saw earnings per share of $2.98 on revenue of $31.9 billion during the same period last year.

The company’s Family of Apps revenue, which includes revenue from Facebook, Instagram, WhatsApp, and Messenger, is expected to come in at $37.7 billion, up from $31.7 billion in Q2 last year. Like Google, Meta could get a lift from advertising surrounding this year’s election as well as the Olympics.

“Meta heads into its Q2 earnings in a position of strength,” Forrester VP and research director Mike Proulx said ahead of the company’s earnings announcement.

“Expect to hear continued growth in Reels as Meta’s short-form video solution cuts into TikTok’s market share. And while Threads has proven it can go head-to-head with X, whether it can effectively monetize or not remains a question,” Proulx added.

Jefferies analyst Brent Thill offered a similarly positive outlook for Meta, writing in an investor note that the firm’s intra-quarter checks have continued to remain bullish on the social media giant’s growth.

“Most of the experts we spoke with noted healthy ad budgets with 'strong' Meta spend growth, albeit some starting to see impact of tougher [comparisons],” Thill said.

While Meta’s advertising revenue looks set for strong performance, that doesn’t mean that every aspect of the company’s earnings report will be positive. Wall Street is still trying to determine how much longer tech companies will need to plow money into AI before they see some kind of revenue payoff.

Last week, CEO Mark Zuckerberg announced Meta’s latest open-source large language model (LLM) called Llama 3.1. What’s more, the Facebook founder said the industry should focus on open-source AI rather than closed-source models like OpenAI’s ChatGPT.

“AI remains the dominant focus for Meta as the battle of the LLMs is just getting started,” Proulx said. “Expect mentions of ‘the metaverse’ or Horizon Worlds to be little to none during the earnings call.”

Speaking of Meta’s Reality Labs segment, analysts are anticipating the business to generate revenue of $376 million, up from $276 million in the same period in 2023. Still, Reality Labs continues to hemorrhage cash.

In Q1, Meta reported that the segment, which is tasked with developing the hardware and software meant to power Zuckerberg’s metaverse dream, lost some $3.8 billion. The division has also been plagued by turnover and a lack of clear vision, adding to Reality Labs’ troubles, Yahoo Finance’s Yasmin Khorram reported .

Meta’s announcement also comes after Texas Attorney General Ken Paxton announced on Tuesday that he secured a $1.4 billion settlement between the state and Meta over the company’s alleged use of Texans’ biometric data without their permission for its Tag Suggestions feature.

@DanielHowley .

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