Before the market opened on Thursday, Meta Platforms saw a significant drop of 14% in its shares during premarket trading. This came in response to the social media giant’s announcement of increased spending on artificial intelligence (AI), which left investors feeling uneasy. The company’s cautious outlook on expenses and revenue the day before caused its shares to decline by 15% in after-market trading, resulting in a loss of nearly $200 billion from its market value, which was previously around $1 trillion. Notably, shares of Alphabet and Snap also experienced declines ranging from 2% to 5%.
Meta adjusted its expense forecast for the year to a range of $96 billion to $99 billion, up from the previous range of $94 billion to $99 billion. This adjustment underscores Meta’s dedication to investing in new AI products and the necessary computing infrastructure to support them. The company foresees continued increases in spending next year, reflecting its long-term strategic vision.
Analysts offered differing views on Meta’s extended spending plans. Some, like those from Morgan Stanley, saw the increased investment positively, pointing to the potential for sustained engagement and revenue growth. Conversely, analysts at Baird emphasized the importance of investment cycles in maintaining growth through innovation, advising against prioritizing short-term financial outcomes over long-term opportunities presented by technological advancements.
Meta’s heightened focus on AI reflects its commitment to remaining competitive in the evolving digital landscape, particularly in the realm of generative AI. The company has been bolstering its ad-buying products with AI tools and introducing new AI features such as chat assistants and short video formats aimed at driving revenue growth and enhancing user engagement.
During a conference call with analysts, Meta’s CEO Mark Zuckerberg acknowledged the impact of increased spending on the company’s investment envelope, stressing the importance of AI in driving future revenue growth. However, he cautioned against expecting immediate returns from AI investments, indicating a departure from the company’s previous reliance on ad revenue.
Analysts highlighted the transformative potential of AI in boosting engagement and utility for Meta’s platforms. However, some investors remain skeptical about the company’s ability to deliver significant growth driven by AI initiatives in the near term, particularly in light of the recent decline in share prices.
Despite market volatility and uncertainty surrounding Meta’s AI investments, the company has experienced significant gains in its stock price this year, outperforming the broader market. As Meta continues to navigate the evolving digital landscape and invest in AI-driven innovation, its ability to deliver sustained growth will be closely scrutinized by investors.
Meta’s strategic shift towards increased spending on AI underscores its commitment to driving innovation and maintaining competitiveness in the digital landscape. While some analysts view the move positively, others remain cautious about the short-term financial implications. As Meta continues to invest in AI-driven initiatives, its ability to deliver tangible results and maintain investor confidence will be key factors shaping its future trajectory in the market.
