Meta is scaring investors with high AI expenditures and disappointing revenue expectations

Meta Platforms’ profit and turnover were higher than expected in the past quarter. But poor expectations for turnover in the second quarter soured the atmosphere after the close. Moreover, the company is spending more than expected on AI. The stock plummeted.

The first quarter figures with which Meta Platforms

came up on Wednesday after trading, are in themselves better than expected. Revenue rose more than 27 percent year over year to $36.46 billion, versus a consensus of $36.12 billion. Earnings per share rose by more than two to $4.71, which was also higher than the $4.3 expected by analysts. “A good start to the year in terms of both product momentum and business performance,” CEO Mark Zuckerberg said during the analyst conference call.

Meanwhile, the share fell more than 10 percent in after-hours trading, rising to more than 15 percent during the conference call. This is due to the poor forecast given by the social media giant. For the second quarter, the company forecasts revenue between $36.5 and $39 billion. The consensus expected $38.3 billion. So much for the expectation that AI would continue to drive significantly higher results. Other technology companies were also under pressure after the close. Alphabet

fell 3 percent, Snap

more than 6 percent and Microsoft

2 percent.

Market expectations had risen considerably in recent months. Since New Year, the stock has bounced back about 40 percent after nearly tripling in 2023 as CEO Mark Zuckerberg continued to emphasize the importance of efficiency and investment in AI.

Meta also expects that capital expenditures will amount to 35 to 40 billion dollars in 2024, while Meta initially expected 30 to 37 billion. “We expect capital expenditures to continue to increase next year as we invest aggressively to support our ambitious AI research and product developments,” said Chief Financial Officer Susan Li.

The CEO immediately responded to the falling share price. “Historically, we see a lot of volatility in our stock at this stage when we are investing in scaling a new product but not yet monetizing it,” he explained. To immediately add that such investments yield very good returns in the long term. He was referring to the short Reels videos, the Stories format for temporary posts and the transition of the News Feed to mobile. These are typically investments that require a number of years of patience.

Meta is pumping a lot of money into its language model Llama, with the aim of offering powerful chatbots and other AI services. The company is also trying to use artificial intelligence to improve the user experiences of apps such as Instagram and WhatsApp and to offer more targeted advertisements. “About 30 percent of posts on Facebook are delivered by our AI recommendation system,” Zuckerberg said. “For the first time, more than 50 percent of the content people see on Instagram is now recommended by AI.”

Another long-term focus is the metaverse, the set of virtual and mixed reality. Zuckerberg sees AI and metaverse coming together. “At first I thought augmented reality glasses wouldn’t go mainstream until we had truly holographic screens,” the CEO said. “Now it’s pretty clear that there’s a meaningful market for fashionable augmented reality glasses without a screen.” He was referring to the recent launch of AI-enabled glasses that allow the user to ask questions about things being looked at. An increasing part of the work in Reality Labs, the department working on virtual and mixed reality, is going to AI. “It’s about building the next generation of computing platforms,” Zuckerberg said.

The CEO sees what are now chatbots developing into agents that can reason and plan. There will be such AIs for customer service companies that work with Meta apps, for creators, for hardware applications like glasses. Meta wants to manifest itself as a leading AI company. Last week it was announced that the Meta AI assistant will have a more prominent place in the various apps, for the time being only in English and not yet in the European Union. Here too, it is an investment that is rolled out cautiously and can only bring in money later.