Meta’s Shares Tumble Despite Earnings Beat on AI Spending Fears

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In the wake of its first-quarter earnings report, Meta Platforms (META) experienced a sharp 15.1% decline in share price to $418.85 in after-hours trading on Wednesday. Despite outperforming earnings estimates, Meta’s guidance for lower-than-anticipated revenue in the coming quarter has sparked investor trepidation.

Concerns escalated when the company unveiled plans to pour significant funds into artificial intelligence (AI), fueling anxieties over the possibility of a delayed payoff from these hefty investments.

AI Takes Center Stage in Meta’s Earnings Discussion

During the earnings call, CEO Mark Zuckerberg opted to focus on the horizon, lauding the company’s promising commencement to the year. He pivoted attention to Meta’s strides in AI, celebrating the progress already made. “We’re reaching a new benchmark in our AI journey, demonstrating our capability to scale the industry’s most cutting-edge AI models and platforms,” Zuckerberg said. He urged for steadfast investment over the next few years, envisioning the creation of unrivaled AI models and the most expansive AI services globally.

Meta Boosts Budget for AI Ambitions

Meta has a reputation for pouring substantial resources into AI, and it’s taking that commitment up a notch by increasing its capital expenditure forecast from $30B-$37B to $35B-$40B for the year. This budget uptick is aimed at nurturing innovative AI products and sustaining the hefty computing infrastructure they demand. Zuckerberg acknowledged the hefty increase in investment spending needed for AI, conceding that it will likely precede any significant revenue generated by these nascent technologies.

Analyst Sentiments Mixed Post Meta’s Stock Tumble

The downturn in Meta’s stock post-earnings hasn’t dampened all spirits. Analysts provided a silver lining amidst the market’s skittish response. Alex King of Cestrian Capital Research praised the quarter as “stellar,” singling out Meta’s robust unlevered pretax free cash flow margins at 38%, a high not seen since March 2022.

Similarly, The Asian Investor took the dip as a buying opportunity, backing the action with confidence in Meta’s solid earnings and a rebound in digital advertising that started in 2023. The Asian Investor deemed the market’s response to Meta’s investment in AI as excessively punitive, implying that such strategic initiatives should be welcomed rather than chastised.