Meta Plunges 13%, Loses $160B on AI Spend Plan

Key Takeaway

• Meta's stock plunged 13% premarket after Q2 revenue forecast missed expectations, wiping over $160 billion off its market cap.
• Plans to boost AI investment to $35-$40 billion underscore Meta's long-term growth strategy despite short-term market reaction.
• Analysts remain optimistic, citing strong ad growth and potential from AI investments, reinforcing a bullish outlook on Meta.

Market Reaction to Meta's Earnings

Meta Platforms experienced a significant drop of 13% in premarket trading following the announcement of its first-quarter results. Despite surpassing Wall Street's expectations for profit and revenue, the company's second-quarter revenue forecast fell short of analyst consensus, leading to a substantial decrease in market capitalization from $1.25 trillion to below $1.09 trillion, erasing over $160 billion in value. Analyst Ralph Schackart from William Blair noted the stock's strong performance prior to the earnings report, which likely heightened investor expectations.

AI Investment Plans

Meta announced plans to significantly increase its investment in artificial intelligence (AI), raising its full-year capital expenditure forecast to between $35 billion and $40 billion, up from the previously estimated range of $30 billion to $37 billion. This increase is attributed to accelerating infrastructure investments to support Meta's AI roadmap, with expectations for further increases in 2025 to bolster ambitious AI research and product development efforts. Despite the market's initial negative reaction, several analysts remain optimistic about Meta's long-term prospects due to its solid ad growth, engagement strength, and potential value from AI investments.

Analyst Perspectives

Wall Street's response to Meta's earnings and spending plans has been generally positive, with many analysts reiterating their bullish stance on the company. Seaport Research analyst Aaron Kessler and KeyBanc Capital Markets analyst Justin Patterson highlighted the potential of Meta's AI investments, despite the uncertainty around the timeline for revenue generation from AI agents. Bernstein analyst Mark Shmulik expressed confidence in Meta's ability to navigate challenges and capitalize on its offensive strategy, emphasizing the company's resilience and potential for growth.

Street Views

• Ralph Schackart, William Blair (Neutral on Meta):

  "The stock has had a strong run until reporting first-quarter results, which likely boosted investor expectations going into first quarter reporting, in our view."

• Aaron Kessler, Seaport Research (Bullish on Meta):

  "While shares declined in the after hours on the elevated investments as well as likely some hope for higher revenue guidance, we remain positive given our expectation for continued solid ad growth, engagement strength, and option value with AI investments."

• Justin Patterson, KeyBanc Capital Markets (Cautiously Optimistic on Meta):

  "AI is not the metaverse. While we are not sure when we will see revenue from AI agents ramp, we are comfortable that Meta will be one of the few players in a solid position when the dust settles."

• Mark Shmulik, Bernstein (Bullish on Meta):

  "Meta’s handled every challenge that’s come their way—TikTok, privacy, cash burn—and come out the other side stronger, leaner and prouder... There’s a difference between defense and offense where expectations are higher and uncertain. But offensive is more fun isn’t it? We’re buyers."