Meta’s AI splurge rattles investors

(Image credit: Qi Yang)

published 3 May 2024

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.

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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”.

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Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

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