Meta Platforms, the social media giant that owns Facebook and Instagram, had a challenging day on the stock exchange. The company’s share price plummeted 14% in pre-market trading on Thursday, triggered by comments regarding increased spending on artificial intelligence (AI).
This plunge followed a dismal Wednesday for Meta, where the company’s downbeat forecast for both expenses and revenue resulted in a 15% after-hours slump in share price. The combined selloff resulted in a staggering $200 billion drop in Meta’s market capitalization, bringing it down to roughly $1 trillion.
Investors grew anxious over Meta’s plans to significantly increase spending on AI products and the associated computing infrastructure. The company narrowed its expense forecast for the current year to a range of $96 billion to $99 billion specifically to fund these AI endeavours. Additionally, they indicated that this spending is likely to continue to rise in the foreseeable future.
Meta’s foray into AI is driven by a desire to close the gap with leaders like OpenAI in the generative AI arena. The company is incorporating AI tools into its advertising products and video formats to bolster revenue growth, while also developing novel features like chatbots.
However, CEO Mark Zuckerberg’s comments during the conference call cast a shadow on investor enthusiasm. He emphasized the need for “substantial” investment upfront before these AI initiatives begin to generate revenue. This tempered expectations for a swift return on investment, following Meta’s past success with ad-driven growth.
Analysts like RBC’s Brad Erickson pointed out that investors unconvinced of AI’s potential to revolutionize user engagement and utility might perceive Meta’s strategy as lacking a clear path to significant future growth. Meta’s future hinges on its ability to successfully navigate this transition, balancing the promise of long-term AI-powered innovation with the need to deliver strong financial performance in the near term.
Meta is dedicating significant resources to its AI initiatives, including the development of a neural network to analyze user-generated content, as well as investments in hardware and software infrastructure. The company also plans to train its algorithms on vast amounts of data to improve their accuracy and effectiveness.
While some analysts applauded Meta’s focus on innovation, acknowledging the necessity of investment cycles to fuel future growth, others expressed reservations. They fretted that prioritizing long-term bets on AI could come at the expense of short-term financial gains. Meta’s commitment to long-term AI development has injected uncertainty among investors, raising questions about the future direction of its business, but it also presents a significant opportunity for future growth.
While the recent stock price slide is a cause for concern, it’s important to remember that Meta remains up nearly 40% for the year, significantly outperforming the broader market. The company’s long-term prospects will depend on the execution of its AI strategy and its ability to effectively communicate its vision to investors. Only time will tell if Meta’s gamble on AI will pay off.
