Meta’s Stock Drops By 15% Due To Expected AI Investments

Thursday, April 25th 2024 witnessed a sharp decline in Meta shares as investors raised concerns about Meta’s intentions to “invest aggressively” in artificial intelligence in the coming years. When the Nasdaq opened, the stock witnessed a whooping drop of as much as 15% to $421.40, knocking off $183 billion from its market value. The selloff began in Wednesday’s after-hours trading as investors turned their attention from the company’s impressive first-quarter profits to the massive cost associated with developing artificial intelligence.

In an intense competition to unleash the immense potential of AI, Meta is taking on Google and Microsoft in this drive. The company’s most recent earnings highlighted that creating the greatest tools is expensive and would take time, even though the rewards might be huge.

Meta disclosed that the first-quarter profit more than doubled compared to the same period last year, while revenue increased by 27%. However, investors were apprehensive due to a rise in expected AI investments of up to $5 billion and the possibility of additional increases in the coming years.

The markets may be by the details around spending plans, according to Sophie Lund-Yates, chief stock analyst at Hargreaves Lansdown, who released a note earlier today. “For all Meta’s bold AI plans, it can’t afford to take its eye off the nucleus of the business — its core advertising activities… Meta’s resources are vast but not infinite, and its digital advertising market share needs defending at all costs,” she added.

As it continues to speed up infrastructure investments to enable AI, Meta announced that full-year capital expenditure will fall in the range of $35–40 billion, up from earlier projections of $30–37 billion. The company said in a statement, “We expect capital expenditures will continue to increase next year as we invest aggressively to support our ambitious AI research and product development efforts.”

CEO Mark Zuckerberg spoke mostly about artificial intelligence (AI) during a conference call with investors. To develop even more sophisticated models, he stated that Meta “should invest significantly more over the coming years” to become “the leading AI company in the world.” Before we receive a significant amount of money from some of these new products, Meta would raise spending “meaningfully.” Positively, we have a proven track record of successfully commercializing our innovative AI services once they achieve scale,” he continued

Stock may be affected by lower-than-expected guidance for the current quarter. Compared to analyst estimates of $38.2 billion, Meta has projected revenue of $36.5–39 billion.

According to Stephen Innes, managing partner of SPI Asset Management, “a slightly lower revenue forecast than anticipated contributed to investor concerns about the company’s future performance.” JP Morgan analysts lowered their price forecast for the company for December 2024 from $580 to $480 on Thursday.