Meta shares experienced a decline due to increased spending on artificial intelligence (AI) and a revenue forecast that fell short of expectations. The company disappointed investors by projecting higher expenses and lower revenue than anticipated. This news led to a significant drop in Meta’s stock market value, slashing nearly $200 billion off its market capitalization, and raised concerns that the rising costs of AI might be outweighing its benefits.
In after-hours trading, shares of Meta Platforms, the parent company of Facebook and Instagram, fell by about 15%, resulting in its market capitalization dropping to around $1 trillion. This decline was nearly as significant as the record one-day loss of $232 billion suffered by Meta on February 3, 2022. Other tech giants like Alphabet and Microsoft also experienced declines in their stock values, with fears that the cost of the AI race could be underestimated by Wall Street.
Nvidia and Amazon also saw declines in their stock prices, reflecting broader concerns about the AI spending trend. Meta announced a revenue forecast for April-June in the range of $36.5 billion to $39 billion, slightly below analysts’ estimates. The company attributed the increased expenses to investments in new AI products and the necessary computing infrastructure to support them, indicating that spending would continue to rise in the following year.
CEO Mark Zuckerberg emphasized the importance of AI investments during a conference call with analysts, stating that these investments would significantly expand their investment portfolio before generating substantial revenue from new products. However, Zuckerberg’s comments, along with the quarterly results, tempered expectations for Meta’s AI investments following a series of successful quarters.
Despite investor skepticism about the growing AI spending, analysts like Jasmine Enberg from Insider Intelligence believe that Meta has the potential to succeed in the AI race, leveraging its existing user base and advertising ecosystem. Meta has been incorporating AI tools into its ad-buying products and introducing new features like a chat assistant to drive user engagement across its platforms.
However, Meta’s Reality Labs division, focused on the metaverse, fell short of expectations for the first quarter, posting sales of $440 million, below the anticipated $475 million. Zuckerberg discussed potential monetization strategies for Meta’s AI chatbot, including business messaging and customer support services. While Meta faces regulatory challenges, such as those impacting its competitor TikTok, the company’s CFO, Susan Li, stated that it’s premature to assess the business impact of potential setbacks for its rivals.
In terms of financial performance, Meta reported first-quarter revenue of $36.5 billion, in line with expectations. The company saw a 7% increase in daily active users across its apps compared to the previous quarter. However, Meta opted to disclose only the Daily Active People (DAP) metric, discontinuing the practice of providing separate figures for Facebook’s user growth, which has slowed in recent years.
