Meta's Stock Takes a Hit as Investors Question AI Spending
Shares in Meta, the company behind Instagram and Facebook, plummeted 11% on Wednesday as investors expressed skepticism about its promise to maintain spending on artificial intelligence (AI) projects despite dwindling profits.
Meta's quarterly results showed revenue grew 28% to $61 billion, while profits fell 14% to $6 billion. The company plans to spend $130 billion to $145 billion this year on AI projects, a significant increase from the $125 billion it had initially planned to spend just three months ago.
Meta's AI Spending Raises Concerns
Chief executive Mark Zuckerberg said the company's AI spending was "accelerating every part of our core business" and that it planned to start selling the technology to other businesses. Susan Li, Meta's chief financial officer, told financial analysts that selling its tech to other companies would help drive returns on its AI spending. However, the company's free cash flow for the quarter was a mere $784 million, the lowest level in at least five years.
Analyst Mike Proulx at Forrester noted that Meta's growing list of AI initiatives may represent company diversification or distraction. "What it generated in cash this quarter almost all got eaten by AI infrastructure spending," Proulx said. "Investors now have to decide whether Meta's growing list of AI initiatives represents company diversification or distraction."
Microsoft's Positive Reception
In contrast, Microsoft reported its quarterly and full-year results on Wednesday, with shares rising 5% in after-hours trading. Sales at Microsoft for the three months from April to June were up 18% to $90 billion, with profits up 31% to $36 billion. Microsoft's chief financial officer Amy Hood said the company's capital spending for the next year would be $175 billion, mostly related to AI and AI infrastructure.
Microsoft's positive reception by Wall Street showed that even huge AI spending can be acceptable to investors when it is not consistently coupled with a lack of clear financial returns. Satya Nadella, Microsoft's chief executive, addressed the AI company's recent issues with its models improperly breaching the technical operations of other companies. "The biggest thing you take away from that is you can't depend on any one model," Nadella said.
Zuckerberg's Bet on AI
Mark Zuckerberg remains optimistic about Meta's AI spending, saying, "My personal bet is that the people who invest in this will feel very good and be rewarded over time." He emphasized that Meta's AI abilities and models were driving engagement on Instagram and Facebook, and boosting the ability of smaller businesses to create advertising. Zuckerberg also highlighted the company's development of AI agents, or AI chatbots that act somewhat autonomously.
These agents "will be the next wave of our product line in the months and years to come," Zuckerberg said. "Soon, we'll have agents that can work 24/7 on your behalf." However, investors remain cautious, and Meta's stock is likely to continue its downward trend unless the company can demonstrate a clear return on its AI spending.
What's Next for Meta?
As Meta's stock takes a hit, the company's future plans remain uncertain. Zuckerberg has emphasized the potential of AI to drive growth and innovation, but investors are demanding concrete results. The company's decision to start selling its AI technology to other businesses may help drive returns, but it remains to be seen whether this move will be enough to restore investor confidence. One thing is certain: Meta's AI spending will continue to be a major focus for the company in the coming months, and its success or failure will have significant implications for the tech industry as a whole.
Source: Joy Online
