Meta’s Investment Plans Rattle Investors

Mark Zuckerberg’s recent announcement about Meta’s spending plans left investors concerned. Despite a 27% rise in revenues, which reached $36.5 billion in the first quarter of 2024, Meta’s shares fell by over 15% after-hours on Wednesday. This drop came after Zuckerberg stated the company’s intent to invest heavily in becoming “the leading AI company in the world.”

The company adjusted its capital expenditure guidance for the year, raising the upper limit from $37 billion to $40 billion. This increase aims to support Meta’s ambitious AI roadmap. Last year, the company spent $28.1 billion on capital expenditures. Moreover, Meta anticipates a rise in capital expenditures for the next year and raised the lower end of its 2024 expense guidance from $94 billion to $96 billion.

Despite these investment plans, Meta’s revenue forecast for the current quarter is between $36.5 billion and $39 billion, slightly above analysts’ estimates of $38.3 billion. Last year, Meta made significant cost-cutting measures, labeling 2023 as a “year of efficiency” amidst challenging economic conditions.

However, with growing competition from tech giants like OpenAI, Microsoft, and Google, Meta faces pressure to accelerate its AI capabilities. Zuckerberg highlighted the need for increased investment to develop advanced AI models and scale AI services globally. He acknowledged that revenue from these new products might take time to materialize.

The market’s reaction wiped off billions from Meta’s market value, marking a significant downturn for a stock that had surged over 40% this year. This decline follows a strong fourth-quarter performance, where Meta announced its first dividend and showed signs of recovery from an advertising downturn.

In its pursuit of AI innovation, Meta has introduced chatbots to enhance user engagement and rolled out improved AI features for advertisers. Recently, Meta launched Llama 3, an updated AI model with enhanced reasoning capabilities, and unveiled a new generation of custom-made AI chips.

Zuckerberg also emphasized Meta’s commitment to its long-term vision of building a metaverse filled with avatars. He mentioned plans to develop “wearable AI,” such as smart glasses embedded with AI assistants. Meanwhile, Meta’s virtual and augmented reality arm, Reality Labs, reported losses of $3.85 billion in the first quarter, consistent with the previous year, and expects operating losses to rise year-over-year.

As Meta shifts its focus toward AI initiatives, experts speculate about the company’s ability to compete effectively while maintaining financial stability. Despite challenges, AI’s practical applications suggest a different trajectory for Meta compared to its previous metaverse endeavors.