Meta’s shares took a sharp dive on Thursday following the company’s announcement of ambitious plans to invest heavily in artificial intelligence, a move that rattled investors.
The stock plummeted by as much as 15% to $421.40 as the Nasdaq opened, erasing a staggering $183 billion from its market capitalization. This significant sell-off, which commenced during after-hours trading on Wednesday, reflects investor concerns shifting from Meta’s robust first-quarter earnings to the substantial costs associated with its AI-focused future endeavors.
In the race to harness the vast potential of AI, Meta finds itself in direct competition with industry giants like Microsoft and Google. While the potential rewards are immense, the latest earnings report underscores the steep costs and time required to develop cutting-edge AI tools.
Despite reporting a doubling of first-quarter profits year-on-year and a 27% increase in revenue, Meta’s announcement of up to $5 billion in projected AI investments for the year, with the likelihood of further increases in subsequent years, unsettled shareholders.
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, noted in a Thursday note that the bold language surrounding Meta’s spending plans may have contributed to investor anxiety.
During an investor call, CEO Mark Zuckerberg emphasized Meta’s ambition to become “the leading AI company in the world” and signaled a significant increase in AI-related expenditure in the coming years to develop more advanced models.
Acknowledging the upfront investment required before realizing revenue from new AI products, Zuckerberg expressed confidence in Meta’s ability to effectively monetize these services once they achieve scale.
Additionally, weaker-than-expected guidance for the current quarter may have further dampened investor sentiment. Meta’s revenue forecast of $36.5-39 billion falls short of analyst expectations of $38.2 billion.
In response to these developments, analysts at JP Morgan revised their December 2024 price target for Meta’s stock from $580 to $480.
