There seems to be a limit to the AI craze on the stock market. Facebook’s Mark Zuckerberg came into contact with it unceremoniously on Wednesday evening. Meta, the company behind Facebook and Instagram, fell 15 percent after the publication of quarterly figures. $200 billion in stock market value went up in smoke in a matter of minutes. Meta’s quarterly results weren’t bad at all, with year-on-year revenues – 98 percent of which come from advertising – growing 27 percent to $36.4 billion and net profit up 117 percent to $12.37 billion, or $1 billion in net profit per week.
The reason for the share’s fall was an update on the investment budget that Meta is setting aside for AI this year. Meta will invest $35 to $40 billion in AI this year, more than the $30-37 billion it previously targeted. 40 billion dollars is therefore a colossal amount. It is the equivalent of eight of those enormous car factories full of robots that Tesla is planting around the world (at a cost of 5 billion dollars per factory). At Meta, those $40 billion do not go to factories but to computers with expensive Nvidia chips and IT experts.
Until a few weeks ago, more investments in AI would have been welcomed on the stock exchange. The more, the better was the motto among investors who embraced AI as a gift from God. AI will have the same impact as the invention of the steam engine or electricity, stock market guru Jamie Dimon of JP Morgan noted.
Thanks to that AI hype, the Meta share has quadrupled in value in just over a year and a half. Meta uses AI to place more targeted advertisements on a Facebook and Instagram timeline. Advertisers are willing to pay more if they are sure that their advertising message mainly reaches users who are interested in their product or service. Zuckerberg also announced that AI will be integrated into augmented reality glasses. According to him, the breakthrough of the metaverse – Zuckerberg’s hobbyhorse – is now one step closer.
The AI hype is somewhat reminiscent of the dotcom craze of the late 1990s. It was enough for a company that had the ‘.com’ in its name as a reference to the nascent Internet to achieve enormous valuations on the stock exchange, also although the company barely recorded any revenue, let alone profit. At Meta or Microsoft, which also received an AI growth boost, no questions need to be asked about profitability, as with many tech companies during the dotcom crisis: both companies are enormous profit machines. The question is whether the enormous investments in AI justify the extremely high prices. Because in addition to the higher-than-predicted investments in AI, Meta also indicated that advertising revenues will be slightly below expectations in the coming quarter. Add the two and you come to the conclusion that the trees no longer grow to the sky at Meta. Investors increasingly want to make a profit when it comes to AI.
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