Meta’s stock experienced a significant drop of 15% due to their ‘aggressive’ plans to invest in AI technology
Meta’s stock fell by 15% due to its “aggressive” plans to invest in artificial intelligence, which raised concerns among investors. When the Nasdaq opened, the stock dropped to $421.40, resulting in a decrease in market value of $183 billion. This sell-off began in after-hours trading on Wednesday as investors shifted their focus from strong first-quarter earnings to the substantial costs associated with building an AI-driven future.
Meta, which also owns WhatsApp and Instagram, is in direct competition with Microsoft and Google in unlocking the immense potential of AI. While the potential rewards are significant, the latest earnings report highlights the high costs and time required to create top-notch AI tools.
In its Wednesday announcement, Meta revealed that first-quarter profits had more than doubled compared to the previous year, with a 27% increase in revenue. However, the projected increase of up to $5 billion in AI investments, along with anticipated further increases in the future, made shareholders uneasy.
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, noted in a statement on Thursday, “The language around spending plans has become more assertive once again, which may be unsettling the markets.” She added, “Despite Meta’s ambitious AI plans, it must not lose sight of its core advertising activities… While Meta’s resources are vast, they are not infinite, and its digital advertising market share must be defended at all costs.”
Meta stated that its full-year capital expenditure would range from $35-40 billion, an increase from the previous guidance of $30-37 billion. This heightened investment aims to accelerate infrastructure improvements to support AI development.
During an investor call, CEO Mark Zuckerberg primarily focused on AI. He expressed Meta’s aspiration to become “the leading AI company in the world” and emphasized the need for significant investment in the coming years to develop even more advanced AI models. Zuckerberg acknowledged that Meta would increase spending before generating substantial revenue from these new products. However, he remained optimistic, stating, “Once our new AI services reach scale, we have a strong track record of effectively monetizing them.”