Meta shares plunge on ‘aggressive’ AI spending plans

Meta shares plunge on ‘aggressive’ AI spending plans

Shares in Meta plunged in premarket trading Thursday as the Facebook owner’s plans to “aggressively invest” in artificial intelligence spooked investors.

The stock fell about 13%, threatening to wipe nearly $163 billion off its market value, as investors looked beyond a rousing first-quarter earnings to focus on the huge costs to companies of building the future of AI.

The company is competing directly with Microsoft and Google to unlock the huge potential of AI. While the rewards may be great, Meta’s latest earnings underscore that building the best tools is expensive and will take time.

Meta (META), which also owns WhatsApp and Instagram, said on Wednesday that first-quarter profit more than doubled year over year, while revenue rose 27%. But the $5 billion increase in projected AI investment — and likely further increases in the following years — has shareholders unsettled.

“The language around spending plans has become bolder again, and this could be a scary market,” Sophie Lund-Yates, principal equity analyst at Hargreaves Lansdown, wrote in a note Thursday.

“For all Meta’s bold AI plans, it cannot afford to distract from the nucleus of the business — its core advertising activity… Meta’s resources are vast but not limited, and its digital advertising market share needs to be defended at all costs,” he added. Meta said a full year’s capital expenditure will be in the $35-40 billion range – up from previous guidance of $30-37 billion – as it continues to accelerate infrastructure investment to support AI.

“We expect capital expenditures to continue to increase next year as we invest aggressively to support our ambitious AI research and product development efforts,” the company added in a statement.

On a call with investors, CEO Mark Zuckerberg focused most of his comments on AI. He said Meta wants to be “the world’s leading AI company” and “should invest more in the coming years to build more advanced models.”

Meta will increase spending “meaningfully before we make a lot of revenue from some of these new products… On the other hand, as our new AI services reach scale, we have a strong track record of effectively monetizing them,” he added.

Weaker-than-expected guidance for the current quarter may also weigh on the stock. Meta had forecast revenue of $36.5-39 billion, compared to analysts’ expectations of $38.2 billion.

“The slightly lower-than-expected revenue forecast contributed to investor concerns about the company’s future performance,” said Stephen Innes, managing partner at SPI Asset Management.