Online Reporter
The huge checks Meta Platforms is writing to support its artificial intelligence ambitions are reminding some investors of the massive metaverse outlays that crippled the stock just a few years ago.
Facebook’s parent posted results last week that beat expectations on key metrics. But Wall Street’s focus was on capital expenditures, which the company said would be as much as $72 billion this year and “notably larger” in 2026. Then, on the earnings call, chief executive officer Mark Zuckerberg downplayed concerns that Meta might be over-spending on things like its Superintelligence Labs group, saying “it’s the right strategy to aggressively front-load building capacity.”
Now Meta shares just posted their worst four-day run since November 2022, falling almost 17 percent and wiping out $307 billion in market value. Not coincidentally, the 2022 selloff was also triggered by investors questioning its spending plans, ultimately sending the stock down 77 percent from a 2021 peak.
“This feels like a return to Meta’s old days of overspending on things that are frivolous or which don’t have appropriate return demands tied to them,” said Tiffany Wade, senior portfolio manager at Columbia Threadneedle Investments, which has about $714 billion in assets. “Investors are losing patience.”
The stock rose 0.2 percent on Wednesday.
Of course, even with the latest tumble, Meta’s stock remains up 7.5 percent this year. That’s because until very recently, spending large sums on AI wasn’t seen as a negative. In fact, companies were rewarded for it because it showed they were staying competitive in the evolving tech landscape.
Zuckerberg has long touted how AI is leading to improved ad targeting and engagement. But with spending continuing to rise, investors are getting skittish about the outlays without more concrete signs of the payoffs.
While AI is less of a long-shot than the metaverse was, “you can draw some parallels between the spending on Superintelligence and Reality Labs,” Wade said. “Both are long-dated projects that don’t have an immediate payback and where the ultimate return is unclear.”
Wade isn’t the only Wall Street pro who sees the connection. Jason Helfstein, an analyst at Oppenheimer, downgraded Meta’s stock in the wake of the earnings report, writing that the “significant investment in Superintelligence despite unknown revenue opportunity mirrors 2021/2022 metaverse spending.”
Meta isn’t the only example of investors getting cold feet about AI spending. Microsoft Corp also fell on its results, although the drop was milder as investors see a clearer path from spending to growth in its Azure cloud-computing business. — Bloomberg
