SUPERNEWS

Macro

Meta Dips 15% on AI Spend, Tesla Up 12% with AI Hopes

Meta's stock falls 15% on AI spending hike, Tesla rises 12% on AI ambitions, highlighting Wall Street's mixed AI enthusiasm.

By Athena Xu

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4/25, 11:14 EDT
S&P 500
iShares 20+ Year Treasury Bond ETF
iShares 7-10 Year Treasury Bond ETF
Apple Inc.
Boeing Company
Caterpillar, Inc.
International Business Machines Corporation
Meta Platforms, Inc.
Merck & Company, Inc.
SPDR S&P 500 ETF TRUST
Tesla, Inc.
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Key Takeaway

  • Meta's stock fell 15% despite excellent earnings due to Wall Street's positive pre-earnings positioning, contrasting with Tesla's 12% rise on poor results but future AI spending optimism.
  • IBM and Caterpillar stocks dropped on disappointing earnings, while Merck rose, highlighting the impact of earnings expectations versus reality.
  • Early trading shows negative money flows in Apple and SPDR S&P 500 ETF Trust, with the momo crowd buying and smart money selling stocks.

Wall Street's AI Enthusiasm

This week, the stock market showcased a stark contrast in investor reactions to two major companies' earnings reports and their plans for artificial intelligence (AI) investment. Meta Platforms, despite reporting earnings that exceeded expectations, saw its stock price plummet by 12.7% following the announcement of a significant increase in AI spending, amounting to an additional $10 billion for the year. This decision was largely influenced by the need to bolster infrastructure for AI investments, especially in the wake of revenue impacts from Apple’s privacy changes. On the other hand, Tesla's stock surged despite disappointing earnings, buoyed by its ambitious AI plans, including the development of robotaxis. The divergent paths of Meta and Tesla underscore the high stakes and varied investor confidence in tech giants' AI strategies.

Market Mechanics and Investor Sentiment

The contrasting market reactions to Meta and Tesla also highlight the underlying mechanics of Wall Street and investor sentiment. Meta's aggressive AI spending plan, despite its potential for long-term gains, spooked investors, leading to a significant stock price drop. Conversely, Tesla, which has seen a 35% decline in its stock price this year, managed to rally investors around its AI vision, promising outsized future profits. This discrepancy can be attributed to the positioning and expectations of Wall Street going into the earnings announcements, with Meta's stock being extremely positively positioned, while Tesla's was not. Understanding these market mechanics can provide valuable insights into the sometimes counterintuitive movements of stock prices in response to corporate announcements.

Broader Industry Implications

The reactions to Meta and Tesla's announcements have implications beyond these companies, signaling a strong industry-wide interest in AI. This is further evidenced by IBM's $6.4 billion acquisition of cloud software maker HashiCorp as part of its AI strategy, despite a slight miss on first-quarter revenue expectations. Additionally, the aerospace sector, represented by Boeing's nearly $4 billion cash burn in the first quarter, highlights the ongoing challenges and the paramount importance of safety and quality in the industry. These developments across different sectors underscore the transformative potential of AI and the varying degrees of investor confidence in companies' ability to capitalize on this technology.