SUPERNEWS

Equities

Meta Stock Dips 10%, AI Spend Up to $40B Amid Revenue Rise

Meta's revenue rises to $36.5 billion, overshooting expectations but forecasts and AI investments prompt a 10% stock drop.

By Athena Xu

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4/24, 16:42 EDT
Alphabet Inc.
Meta Platforms, Inc.
Microsoft Corporation
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Key Takeaway

  • Meta's Q1 revenue rose to $36.5 billion, surpassing expectations but its Q2 forecast fell short of Wall Street predictions, causing a 10%-11% stock drop.
  • The company increases capital expenditure guidance to $35-$40 billion for AI advancements, despite Reality Labs' $3.85 billion loss.
  • Legislative actions against TikTok could benefit Meta by eliminating a major competitor in the advertising market.

Meta's Financial Performance Surpasses Expectations

Meta Platforms Inc. reported a significant increase in revenue for the first quarter, with figures reaching $36.5 billion, a 27% rise from the previous year. This performance slightly exceeded analyst expectations, which had projected revenues of around $36.1 to $36.2 billion. Despite this achievement, Meta's forecast for the second quarter, estimating revenues between $36.5 billion and $39 billion, did not meet Wall Street's expectations of $38.2 to $38.3 billion. Following the announcement, Meta's shares experienced a 10% to 11% decline in after-hours trading. Earlier in the year, the company's stock had seen a more than 40% increase, buoyed by a strong fourth-quarter earnings report and the initiation of its first dividend.

Strategic Investments in AI

Meta has been focusing heavily on artificial intelligence (AI), with CEO Mark Zuckerberg leading the company's efforts to stay competitive in the AI race against tech giants such as Microsoft Corp. and Alphabet Inc. This strategic direction is underscored by Meta's decision to raise its full-year capital expenditure guidance from $37 billion to a range of $35 billion to $40 billion, primarily to accelerate infrastructure investments supporting its AI roadmap. The company has also announced the development of new AI models, such as Llama 3, and is investing in custom-made chips for AI services. Despite these investments, Meta's Reality Labs division, which focuses on futuristic technologies like the metaverse, reported a first-quarter loss of $3.85 billion, consistent with the previous year's figures.

Market Dynamics and Competitive Landscape

The broader market dynamics, including legislative actions against competitors like TikTok, could potentially impact Meta's market position. The recent signing of a bill that might force TikTok's parent company, ByteDance Ltd., to sell the video service or face a U.S. ban, could indirectly benefit Meta by removing a key competitor in the advertising space. Meta's aggressive investment in AI and its strategic positioning against competitors have been significant factors in its stock performance, which has added nearly $350 billion to its market value, trading at less than 23 times estimated earnings.

Management Quotes

  • Meta on its full-year capital expenditure guidance:

    "Continue to accelerate our infrastructure investments to support our artificial intelligence (AI) roadmap... expected capital expenditures to continue to increase next year."

  • Mark Zuckerberg, CEO of Meta:

    "Attempting to keep investors happy and cut costs while investing in the artificial intelligence race, its longer-term metaverse ambitions and the costly technology and infrastructure required to support both."