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Equities

Meta AI Spend Soars to $40B, Shares Dip 10%

Meta's AI investments raise concerns as $40 billion spending overshadows robust $36.5 billion Q1 revenue, sparking tech sector unease.

By Barry Stearns

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4/24, 21:35 EDT
Amazon.com, Inc.
Alphabet Inc.
Meta Platforms, Inc.
Microsoft Corporation
NVIDIA Corporation
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Key Takeaway

  • Meta's AI spending raises concerns as capital expenditures jump to $40 billion, overshadowing a 27% revenue increase to $36.5 billion.
  • Investor apprehension over AI investment efficacy leads to a 10% drop in Meta shares after-hours, impacting broader tech sector sentiment.
  • The tech industry faces scrutiny over AI monetization and high costs, affecting stocks like Alphabet, Microsoft, Amazon, and Nvidia.

AI Spending Concerns

Investor sentiment towards Meta Platforms Inc.'s ambitious spending on artificial intelligence (AI) has become cautious amid slowing revenue growth and rising costs. Despite Meta's technological advancements, including the development of its first AI-designed chip and the release of the Llama 3 generative AI model, the company's significant financial commitment to AI has raised eyebrows. With an expected increase in capital expenditures to up to $40 billion this year, reflecting a $3 billion hike from initial forecasts, Meta's AI and metaverse projects are under scrutiny for their lack of a clear revenue timeline. This expenditure represents a substantial portion of the company's forecasted annual revenue, highlighting the scale of its investment in AI infrastructure.

Meta's Financial Performance

Meta reported a 27% increase in revenues to $36.5 billion in the first quarter of the year, slightly surpassing analyst expectations. However, the company's projection of higher capital expenditures, raising the upper limit from $37 billion to $40 billion to bolster its AI roadmap, has led to investor apprehension. This announcement, coupled with revenue forecasts for the current quarter falling short of consensus estimates, resulted in a 10% decline in Meta's shares in after-hours trading. Despite these challenges, Meta's operating profit saw a significant increase of 91% in the last quarter, indicating that the company's core operations remain robust.

Market Reaction and Tech Sector Impact

The market reacted negatively to Meta's earnings report, with shares dropping as much as 19% in after-hours trading. This downturn affected the broader tech sector, with declines observed across major companies such as Alphabet Inc., Microsoft Corp., Amazon.com Inc., and Nvidia Corp., among others. The tech-heavy Nasdaq 100 Index ETF also experienced a downturn. Analysts and investors are expressing concerns over the monetization of AI and the high capital expenditures associated with these investments. The apprehension extends beyond Meta, affecting sentiment towards the entire tech industry's AI ambitions.