Meta’s Shares Sink On Higher AI Spending, Light Revenue Forecast


Meta Platforms left investors disappointed on Wednesday as it projected higher expenses and lower-than-expected revenue, resulting in a staggering $200 billion loss in stock market value. This raised concerns that the escalating costs of AI may be surpassing its benefits.

In the wake of the report, shares of the Facebook and Instagram parent plummeted approximately 15% in after-hours trading, leading to a market capitalization drop to around $1 trillion. Additionally, Alphabet shares experienced a 3% decline, while Snap and Microsoft shares fell over 6% and 2%, respectively.

Meta’s forecast for April-June revenue ranged from $36.5 billion to $39 billion, with a midpoint of $37.8 billion, falling short of analysts’ expectations of $38.3 billion. The company attributed the increased expenses to investments in new AI products and the necessary computing infrastructure, anticipating further spending hikes in the coming year.

CEO Mark Zuckerberg addressed analysts, emphasizing the significant expansion of their investment envelope in AI, despite expecting delayed revenue from these new products. This statement, alongside the quarterly results, tempered optimism regarding Meta’s AI investments, following a string of successful quarters.

Jasmine Enberg, principal analyst at Insider Intelligence, noted investor skepticism towards Meta’s escalating AI expenditures, cautioning that the returns on these investments might take years. However, Enberg also recognized Meta’s potential as a dark horse in the AI race, leveraging its existing user base and ad ecosystem for eventual monetization.

Meta has been actively integrating AI into its ad-buying products and social media platforms to drive revenue growth and user engagement. Last week, it announced giving prominence to its Meta AI assistant across its apps, signaling its commitment to AI-driven innovation.

Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, emphasized the importance for Meta to maintain focus on its core advertising activities amid its ambitious AI plans. Additionally, Meta stands to benefit from regulatory pressures on competitors like TikTok, potentially facing a U.S. ban.

In the first quarter, Meta posted revenue of $36.5 billion, in line with expectations, while its daily active people (DAP) metric, indicative of unique users across its platforms, saw a 7% increase. However, this growth rate was lower than the 8% growth seen in the preceding quarter. Notably, Meta chose not to disclose specific user growth figures for Facebook, signaling a strategic shift in its reporting practices.