Meta’s Stock Declines on AI Spending Plans

On Thursday, April 25, at the premarket, the price of Meta shares showed a drop in the dynamic amid news about the intention of this technology giant to switch to a strategy of so-called aggressive investment in the artificial intelligence industry, which investors treat with extreme caution and significant concerns.

Meta’s Stock Declines on AI Spending Plans

The securities of the parent company of such globally popular virtual platforms as Instagram, Facebook, and WhatsApp, have fallen in price by about 13%. Against this background, there were concerns that the market value of the technology giant could shrink by more than $160 billion. The corresponding expectations regarding the dynamic of the financial performance of the company arose against the background of the fact that investors paid special attention to the huge costs of Meta, focused on the development of products based on artificial intelligence. It is worth noting that the technology giant perceives and evaluates AI as much more than a kind of accelerator of the existing system of functioning or a tool that increases the level of efficiency of work processes. In the paradigm of corporate perception of Meta, artificial intelligence has the characteristic of a sort of large-scale force, which to some extent, in a symbolic sense, is the foundation for creating the future as a fundamentally new configuration of technological reality that has a profound and transformative impact on the existence of mankind civilization.

In the so-called machine intelligence race, the company competes with such major players in the industry as Microsoft and Google. Tech giants are realizing the enormous potential of artificial intelligence. In the mentioned race, the winner will be the one who will be the first to offer consumers and implement into the system of functioning those advantages of AI that were previously unavailable.

The benefits of active efforts in the artificial intelligence industry can be more than enormous. At the same time, the Meta example shows that making a profit in the context of the relevant activity is for the most part a long-term prospect. Also, the development of AI products and technologies requires significant costs. For Meta, the lack of a quick result is not an obstacle to the implementation of the concept of its advancement within the framework of the active use of artificial intelligence.

Last Wednesday, April 24, the technology giant announced that its net income for the first quarter of 2024 increased by 117% year-on-year. In monetary terms, this figure amounted to $12.3 billion. The company’s revenue for January-March of the current year showed an increase of 27% compared to the result for the same period in 2023. This figure in monetary terms is $36.4 billion.

At the same time, the unambiguously positive financial results of the technology giant for the first quarter of 2024 did not become a reason for confident optimism among shareholders, who are concerned about an increase in projected investment volumes in artificial intelligence by $5 billion and about a significant probability of further raising the corresponding amount in the coming years.

Sophie Lund-Yates, a lead equity analyst at Hargreaves Lansdown, said in a note released Thursday that the wording regarding Meta’s spending plans has become bolder, which may be the reason for the excitement on the part of the markets. According to her, the company, despite its significant ambitions for artificial intelligence, cannot reduce the intensity of its core business, which is advertising activity. In this context, the expert also noted that the resources of the technology giant are huge, but not endless. Sophie Lund-Yates reckons that the company needs to protect its share of the digital advertising market at all costs.

Meta reported that its capital expenditures for the whole of 2024 will be between $35 billion and $40 billion. It is worth noting that the initial forecast provided that the mentioned figure would range from $30 billion to $37 billion. The growth of the mentioned expenditures of the technology giant is largely due to intensive investment in the infrastructure necessary for the functioning of artificial intelligence systems and services.

Meta’s official statement notes that the company expects a further increase in capital expenditures in 2025. In this context, the dependence of the dynamic of the specified figure on the implementation of initiatives related to ambitious research in the area of artificial intelligence and product development was also underlined.

This week, during a phone conversation with investors, Meta CEO Mark Zuckerberg focused on the topic of the company’s efforts in the sphere of machine intelligence. In this context, he stated the desire of the technology giant to become a leading player in the artificial intelligence industry on a global level. Mr. Zuckerberg also noted that the company should significantly increase its investment in the development of more advanced AI models. He underlined that initially the technology giant will raise the volume of financial injections into artificial intelligence and only after that will receive significant revenue from some of the new products. This statement by Mark Zuckerberg can be interpreted as a kind of ascertainment of his readiness for a strategy of activity focused on long-term results and not envisaging goals in the form of quick or relatively quick benefits. The CEO of Meta also noted that as soon as the company’s new artificial intelligence services are scaled, there will be an experience of their effective monetization.

The technology giant expects its revenue to be between $36.5 billion and $39 billion in the second quarter. This indicator is slightly lower than analysts’ expectations and could potentially become a factor of pressure on the price of Meta shares.

Stephen Innes, the managing partner at SPI Asset Management, says that the revenue forecast, which turned out to be less optimistic than experts’ expectations, increased investors’ concerns about the company’s future performance.

In a note by Morgan Stanley analysts, led by Brian Nowak, it is noted that for Meta, enlarging investments is the right decision, as the company continues to accelerate the financing of artificial intelligence infrastructure for more durable engagement and revenue growth. Baird experts agree with this opinion. They noted that Meta’s report is a reminder that sustaining growth through innovation requires investment cycles. In their opinion, it is foolish for the company to ignore the significant opportunities generated by technological changes for the sake of short-term financial results.

As we have reported earlier, Meta Releases Llama 3.

Serhii Mikhailov

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Serhii’s track record of study and work spans six years at the Faculty of Philology and eight years in the media, during which he has developed a deep understanding of various aspects of the industry and honed his writing skills; his areas of expertise include fintech, payments, cryptocurrency, and financial services, and he is constantly keeping a close eye on the latest developments and innovations in these fields, as he believes that they will have a significant impact on the future direction of the economy as a whole.