Meta (META) stock fell more than 10% on Thursday after CEO Mark Zuckerberg announced the social media company was pouring more money into its AI efforts, spooking investors.
However, the CEO tried to allay investor concerns about the company’s spending during Wednesday’s earnings release, noting that Meta has made similar moves in the past in transitioning to other new technologies.
“At this stage of our product playbook, where we are investing in scaling a new product but not yet monetizing it, we have historically experienced a lot of volatility in our stocks. We’ve seen this with Reels, Stories, the News Feed transition to mobile, and more,” Zuckerberg said.
But he also admitted that it will likely take years for Meta to turn a profit on its AI investments. In January, Zuckerberg announced via an Instagram post that Meta would purchase around 350,000 Nvidia H100 AI chips by the end of the year. While Nvidia doesn’t disclose the exact price of its data center chips, estimates suggest they cost between $20,000 and $40,000 each. That would put the estimated cost of Meta in the billions of dollars.
Meta CFO Susan Li backed up Zuckerberg’s statements in her earnings call commentary, raising the company’s full-year cost estimate from a range of $94 billion to $99 billion to $96 billion to $99 billion due to higher infrastructure and legal costs. Li said the company’s investments will also increase in the coming years.
“Although we do not provide forecasts beyond 2024, we expect capital expenditures to continue to increase next year as we invest aggressively to support our ambitious AI research and product development efforts,” Li said.
While Wall Street’s early reaction to Zuckerberg’s comments may have deterred some investors, experts say the investments will likely pay off more in the long run than, say, the company’s Metaverse play.
“There is no doubt that Meta is fully committed to AI, but to realize its vision the company needs to make major investments in infrastructure. “Mark Zuckerberg’s ‘caution’ was reminiscent of what he once said about the metaverse,” Mike Proulx, vice president and director of research at Forrester, said in a statement.
“That didn’t exactly go well, but this is different from Meta’s Metaverse gamble because AI now has real and practical use cases.” The question remains whether Meta can compete in AI while maintaining a strong financial position.” , he added.
William Blair analyst Ralph Schackart, meanwhile, said that while the timing and scope of Meta’s generative AI investments will be larger and longer than previous buildouts, taking actions now will put Meta in a more competitive position against the competition.
“We believe [Meta] is still cautious with its spending and will ultimately be one of the frontrunners in the AI race. However, this may take time and provide investors with further evidence,” he wrote in an investor note.
Meta’s AI investments span two divisions, one for consumers and the other for advertisers. On the consumer side, there’s the company’s new meta AI chatbot, which answers general knowledge questions from users. Then there’s Meta AI’s client side, which allows advertisers to build advertising campaigns on the company’s social platforms using AI.
However, the focus on Meta’s AI investments overshadows the fact that the company still beat analysts’ expectations on revenue and earnings for the quarter, reporting earnings per share (EPS) of $4.71 at a achieved sales of $36.46 billion. Analysts expected earnings per share of $4.30 on revenue of $36.12 billion, according to analyst estimates compiled by Bloomberg.
However, the company said it expects second-quarter revenue to be slightly below Wall Street expectations. Meta said it expected second-quarter revenue between $36.5 billion and $39 billion; Estimates put the figure at $38.24 billion.
Email Daniel Howley at [email protected]. Follow him on Twitter at @DanielHowley.
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