Tech Giant's Shares Drop 15% on Bold AI Investment Strategy
Tech giant's shares took a nosedive in premarket trading following the announcement of an ambitious investment plan in artificial intelligence, causing concern among investors.
Shares in Meta took a big dive on Thursday. This happened because investors got scared when they heard that the owner of Facebook wants to spend a lot of money on artificial intelligence.
The company's stock dropped by up to 15% to $421.40 when the Nasdaq stock market opened. This caused Meta to lose $183 billion in its market value. The drop began after the market closed on Wednesday. Investors were no longer just thinking about how much money Meta made in the first quarter. They were now worried about how much it will cost the company to focus on artificial intelligence in the future.
Meta is in direct competition with tech giants Microsoft and Google in the race to harness the power of AI. Despite the potential rewards, the company's latest earnings report highlights the significant costs and time required to develop top-notch tools.
Meta, the parent company of WhatsApp and Instagram, announced a more than doubled first-quarter profit compared to the previous year, with a 27% increase in revenue. However, the projected $5 billion investment in AI and the possibility of even more in the future have left shareholders feeling uncertain.
"The markets may be getting jittery again due to the bold language surrounding spending plans," noted Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown on Thursday.
Despite Meta's ambitious AI initiatives, Lund-Yates emphasized the importance of not losing focus on its core advertising business. She highlighted that while Meta has significant resources, it must prioritize defending its market share in digital advertising.
This screen grab of an Imagine with Meta AI prompt shows AI-generated images.
This screen grab of an Imagine with Meta AI prompt shows AI-generated images.
Catherine Thorbecke/CNN via Imagine with Meta AI
Related article
Meta's AI image generator has difficulty understanding interracial couples.
Meta has announced that its full-year capital expenditure will be between $35-40 billion, which is higher than the previous guidance of $30-37 billion. This increase is due to the company's ongoing efforts to invest in infrastructure to support AI technology.
The company stated that capital expenditures are expected to rise next year as they invest heavily in supporting their AI research and product development efforts.
During a call with investors, CEO Mark Zuckerberg emphasized Meta's focus on AI. He expressed the company's goal of becoming the top AI company globally and highlighted the need for significant investment in building more advanced models in the upcoming years.
Meta plans to increase spending significantly before generating substantial revenue from new products. However, there is optimism that once their AI services gain traction, they have a proven history of effectively monetizing them.
The stock may be under pressure due to Meta's lower-than-expected guidance for the current quarter. The company has projected revenue to be between $36.5-39 billion, falling short of analyst estimates of $38.2 billion.
Stephen Innes, managing partner at SPI Asset Management, mentioned that investor concerns about the company's future performance were partly due to a slightly lower revenue forecast than expected.
On Thursday, analysts at JP Morgan reduced their price target for the stock in December 2024 from $580 to $480.
This article has been updated after the market opened.
Editor's P/S:
The recent plunge in Meta shares highlights the delicate balance that companies face when investing in emerging technologies. While AI holds immense potential for growth, it also requires substantial financial resources and a long-term perspective. Investors' concerns about Meta's increased spending on AI reflect the need for companies to strike a balance between innovation and financial prudence.
Furthermore, Meta's lower-than-expected revenue guidance for the current quarter has added to investor uncertainty. This suggests that the company may face challenges in monetizing its AI investments in the near term. Meta's ability to successfully navigate these challenges and deliver on its AI ambitions will be crucial for its long-term success.
