Meta Platforms has suffered its second-worst daily loss in market value on record.
Part of the reason for last month’s 15% slide was that while Meta eclipsed forecasts for first quarter profits and sales, its outlook for the second quarter disappointed, says Jack Denton in Barron’s.
But the main problem was that the owner of Facebook “shocked” investors with plans to “spend even more aggressively on artificial intelligence [AI]”. It raised forecasts for full-year capital expenditures to between $35bn and $40bn, up from between $30bn and $37bn.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The money will go towards “ambitious AI research and product development”. Meta’s decision to bet on AI to this extent has undermined the “hard work the company has done to convince the market it has a tight rein on the purse strings”, says Russ Mould of AJ Bell.
It has also “reawakened” concerns about “a lack of discipline” from CEO and founder Mark Zuckerberg only a few years after he opted to spend large sums on the Metaverse, a punt on virtual reality that will take years to pay off (if it ever does).
What’s more, even if the investment proves the correct decision, the fact that Meta feels the need to engage in “an AI arms race” is worrying.
Are investors pulling away from the AI boom?
Meta’s pivot to AI is clearly “not going well”, says Robert Cyran on Breakingviews.
Still, that doesn’t mean that investors’ appetite for AI in general is waning. They are more upbeat about Microsoft’s capital expenditure, mostly on AI, tripling to more than $40bn this year.
The difference? Unlike Meta, Microsoft is also a “shovel merchant” in this gold rush, thanks to its Azure cloud platform, used by firms like OpenAI to train and run AI systems. Azure’s sales rose by 31% in the first quarter, with the Intelligent Cloud division Microsoft’s “biggest and fastest growing”.
It seems that for now, “investors are more keen to reward the toolmakers than the speculators”.
This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
-
Older renters £2,000 worse-off than homeowners – the risks of renting in retirementThere are financial risks to renting in your golden years, research suggests
-
Waspi women targeted in fake compensation scamThe Waspi campaign has warned of a steep rise in fraudulent websites which claim compensation is available for 1950s-born women affected by state pension age changes
-
Watch out for fake Steven Bartlett video – you could lose thousandsScammers are trying to tap into the Trump tariffs chaos with fake stock tips. Knowing what to look out for could save you thousands of pounds, says Kalpana Fitzpatrick
-
Out of America's shadow: Why Trump's tariff chaos may be good for non-US stocksOpinion Upending global investment and trade could benefit other countries at the expense of the US market, says Cris Sholto Heaton
-
BP's 'long, painful decline' – and why next year could be even tougherOpinion Long-suffering shareholders in oil giant BP have been pushing for change. It won’t come soon enough, says Matthew Lynn
-
Investment trusts tap the profits in exotic and obscure global marketsOpinion Peter Walls, manager of the Unicorn Mastertrust fund, highlights three investment trusts as he shares where he'd put his money
-
Falling revenues and mounting debt spell trouble for Jumia TechnologiesStruggling African e-commerce platform Jumia Technologies looks headed for the exit, says Dr Matthew Partridge.
-
Next reports £1 billion in annual profits for the first time – what's next for the retailer?Clothing retailer Next has become only the fourth member of its sector to surpass £1 billion in annual profits. What does this mean for the company's future?
-
Best of British bargains: cash in on undervalued companies in the UK stock marketOpinion Michael Field, Chief Equity Market Strategist, EMEA, Morningstar, selects three attractive UK stocks where he'd put his money
-
Building firm Keller presents low debt and ample scope for growthGeotechnical contractor Keller, which supports vital global infrastructure, boasts rising profits and a cheap valuation
