Meta Platforms’ Stock Tumbles Amid Surging AI Costs & Low Revenue

Meta Platforms' Stock Tumbles Amid Surging AI Costs & Low Revenue

Meta Platforms, the parent company of Facebook and Instagram, left investors dismayed as it projected higher expenses and lower revenue than anticipated. This revelation led to a staggering $200 billion drop in the company’s stock market value, igniting concerns about the escalating costs of Artificial Intelligence outpacing its returns.

In response to the discouraging news, Meta’s shares tumbled approximately 15% in after-hours trading, causing its market capitalization to dwindle to about $1 trillion. The ramifications of Meta’s forecast were felt beyond its own stocks – Google’s Alphabet shares plummeted 3%, Snap shares experienced a 6% decrease, and Microsoft shares also saw a 2% decline.

According to Meta’s projections, its revenue for April-June is estimated to range from $36.5 billion to $39 billion, falling short of analysts’ expectations of $38.3 billion, as reported by LSEG data.

CEO Mark Zuckerberg acknowledged the impact, stating that the company’s investment in new AI technologies and the essential computing infrastructure would surge expenses. Meta revised its anticipated total expenses for 2024 to a range of $96 billion to $99 billion, up from the previous estimate of $94 billion to $99 billion. Additionally, the capital expenditure for 2024 is now expected to hover between $30 billion and $40 billion, compared to the initial forecast of $35 billion to $37 billion.

Despite the financial setback, Zuckerberg affirmed the necessity of prioritizing AI advancements, emphasizing that this strategic focus would significantly expand their investment capacity before yielding substantial revenue from these innovations.

Industry experts, like Jasmine Enberg, a principal analyst at Insider Intelligence, voiced skepticism regarding Meta’s escalating AI spending, anticipating a prolonged duration for the investments to pay off. Enberg also pointed out Meta’s competitive edge in AI due to its established user base across various platforms, which could prove advantageous for future monetization through its advertising ecosystem.

While investors remained cautious toward the surging AI expenditures, Meta continued to refine its advertising products with AI tools and short video formats to stimulate revenue growth. The company introduced new AI features, such as a chat assistant, to enhance engagement on its social media platforms.

In response to regulatory pressures, Meta capitalized on TikTok’s uncertainties, potentially facing a US ban. The competition with TikTok facilitated favorable market conditions for Meta, allowing it to bolster its position in the evolving digital landscape.

The first-quarter revenue figures for Meta stood at $36.5 billion, aligning closely with the anticipated $36.2 billion. Noteworthy growth was observed in Meta’s daily active people (DAP), a metric tracking unique users across Facebook, Instagram, Messenger, and WhatsApp, exhibiting a 7% increase.

While Meta disclosed positive user growth metrics, it notably omitted specific figures for Facebook, signaling a strategic shift in its reporting practices. With user engagement at the forefront of its operations, Meta’s continued focus on innovation and adaptation remains pivotal in navigating the dynamic realms of technology and social media.

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