Meta sees $185 billion in market value evaporate due to unbridled AI investments

Meta Platforms, the company behind Facebook, Instagram and WhatsApp, is frightening investors with billions in investments in AI, while there remains uncertainty about when those investments will make money. The stock is plummeting.

It seems back at the end of October 2021 for Meta Platforms

. Then CEO Mark Zuckerberg announced that the company was all about the metaverse, a science fiction-like vision in which physical and digital worlds would merge. The name was changed from Facebook to Meta Platforms. Every year, billions were pumped into a vision of the future full of headsets. It quickly became apparent that virtual and mixed reality remained a niche. In early 2022, the stock began a downturn, from over $320 at the time of the announcement to under $100 in November 2022.

Fast forward to Wednesday, when it presents its first quarter 2024 results. Meta makes it clear that it wants to become a leading global AI player. That may cost something. Meta expects capital expenditures to reach $35 billion to $40 billion in 2024, while Meta initially projected $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. Zuckerberg was clear: “We’re going to meaningfully expand our investments before we get a lot of revenue from some of those new products.”

Last year was all about efficiency. The number of jobs was severely cut and the company’s apps were running at full speed. The price went from less than $100 in November 2022 to more than $500 in early April this year. But after the announcement about the investments, the share fell more than 15 percent in after-hours trading on Wednesday. Meta opens today 14.7 percent lower at $ 421.27. Because not only are there increased investments, the prospects for the current quarter were disappointing. For the second quarter, the company expects revenue between $36.5 billion and $39 billion. The consensus expected $38.3 billion. So much for the expectation that smart use of AI would lead to an unstoppable series of positive surprises.

Has Meta, instead of an efficiency-driven company, switched back to an adventurous existence where billions are invested in highly uncertain visions of the future? Zuckerberg did his best to nuance things. He did this by explaining more about the nature of the AI ​​projects and how those projects overlap with the metaverse ambitions.

Meta is already trying to use AI 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 recommended by AI.” It was not revealed how much longer users will continue to look at posts thanks to AI. AI is also used to show advertisers more relevant advertising. Revenue from AI-powered services such as Advantage+ Shopping and Advantage+ App Campaigns has doubled since last year.

The AI ​​ambitions also go in other directions than recommendations. The company recently launched the AI ​​assistant Meta AI in some English-speaking countries. Users can ask questions via the Meta apps. Work is underway on AIs to help creators interact with fans, business AIs for customer services, and internal AIs for software development. “There are several ways to build a huge business here, such as scaling business messaging, introducing ads or paid content into AI interactions, and allowing people to pay to use larger AI models and access to get more computing power,” says Zuckerberg. In addition, the CEO sees the AI ​​assistants evolving into AI agents, who can reason and plan and carry out tasks autonomously.

There is another application that allows Zuckerberg to bridge the gap between AI and the metaverse: the smart Ray-Ban Meta glasses. Starting this week, it can be used in the US and Canada with the Meta AI assistant. The user can then ask questions about things being looked at. Reality Labs, the ‘metaverse division’, posted a loss of $3.8 billion in the first quarter. An increasing part of the work in Reality Labs, the department working on virtual and mixed reality, is going to AI. Internally, there is hardly any talk about the ‘metaverse’, but there is talk about the ‘computer platform of the next generation’. Perhaps that will reassure some observers, in the sense that AI seems more concrete than ‘metaverse’.

“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,” Zuckerberg said euphemistically. To immediately add that such investments yield very good returns in the long term. But he also warned: “Building industry-leading AI will be a bigger undertaking than the other experiences we’ve added to our apps. This will probably take several years.’