Meta Stock Plunges Due to "Aggressive" AI Spending Plans

Shares of Meta took a nosedive in premarket trading on Thursday as investors were spooked by the company's plans to "invest aggressively" in artifici...

Shares of Meta took a nosedive in premarket trading on Thursday as investors were spooked by the company's plans to "invest aggressively" in artificial intelligence.

The stock plummeted by approximately 13%, putting nearly $163 billion of market value at risk, as investors shifted their focus from Meta's robust first-quarter earnings to the substantial costs associated with building an AI-driven future.

Meta, which owns popular platforms like WhatsApp and Instagram in addition to Facebook, announced on Wednesday that its first-quarter profits were more than double the previous year, with a 27% increase in revenue. However, the projected increase of up to $5 billion in AI investments, along with the likelihood of future augmentations in subsequent years, left shareholders uneasy.

"The language used in the company's spending plans has become more audacious once again, and this might be what is unnerving the markets," stated Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, in a note on Thursday.

Lund-Yates added, "Despite Meta's ambitious AI plans, it cannot afford to lose sight of its core advertising activities—the nucleus of the business. While Meta's resources are vast, they are not limitless, and safeguarding its digital advertising market share is imperative."

Investment in Infrastructure to Support AI Initiatives

Meta revealed that its full-year capital expenditure would range between $35-40 billion, surpassing previous guidance of $30-37 billion, as the company continues to accelerate infrastructure investments to bolster its AI endeavors.

"We anticipate a continued increase in capital expenditures next year as we aggressively invest to support our ambitious AI research and product development efforts," the company stated in a press release.

During an investor call, CEO Mark Zuckerberg devoted a significant portion of his remarks to AI. He expressed Meta's aspirations to become "the leading AI company in the world" and emphasized the need for substantial investments over the coming years to create even more advanced AI models.

Zuckerberg further elaborated, stating, "We expect to considerably increase spending before generating substantial revenue from these new products. On the upside, we have a strong track record of effectively monetizing our new AI services once they reach scale."

Weaker Q1 Guidance and Market Response

The stock was also impacted by weaker-than-expected guidance for the current quarter. Meta projected revenue between $36.5-39 billion, falling short of analyst expectations of $38.2 billion.

"The slightly lower revenue forecast than anticipated contributed to investor concerns about the company's future performance," remarked Stephen Innes, managing partner at SPI Asset Management.

25 Nis 2024 - 14:02 - Business

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