The social network giant is investing more money in its artificial intelligence (AI) projects, which alarmed investors and caused Meta stock to drop over ten percent on Thursday.
In contrast, the Chief Executive Officer attempted to ease investor worries on Wednesday’s earnings call by pointing out that Meta had previously taken similar actions when implementing new technologies.
In the past, when we’ve been making investments in developing an innovative offering but have yet to monetize it, this stage of our product strategy has seen quite a bit of fluctuation in our stock. According to Zuckerberg, “We experienced this in Reels, Stories when Newsfeed switched to adaptable, and more.”
However, he also acknowledged that Meta would probably take a while to see a return on its AI investments. At the conclusion of the year, Meta will buy about 350,000 Nvidia H100 Intelligence chips, according to a January Instagram post from Zuckerberg. The precise pricing of Nvidia’s data centre chips is unknown, but estimates place it somewhere in the range of $20,000 to $40,000 per unit. Accordingly, Meta’s projected expenses would be far into the tens of billions of dollars.
In her earnings note comments, Meta CFO Susan Li supported Zuckerberg’s claims by estimating that the business’s full-year total spending will increase from an estimated amount of 94 billion dollars and $99 billion in the past to among the amount of $96 billion and $99 billion as a result of increased infrastructural and legal expenses. According to Li, the corporation will make further investments in the coming years.
Li stated, “We anticipate that expenditures on capital will keep on increasing in the coming year because we will invest significantly in assisting our ambitions AI study and development of products efforts, even though we are not offering advice for periods beyond 2024.”
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Although some investors may have been turned off by Wall Street’s first response to Zuckerberg’s remarks, experts predict that the investment is going to pay off more in the long term than the company’s metaverse strategy.
Without question, Meta is fully committed to AI, but significant infrastructure expenditures are needed for the company to realize its goals. Mike Proulx, executive vice president and analysis head at Forrester, stated in a statement that Mark Zuckerberg’s “heads up” reminded him of what he said previously on the metaverse.
That didn’t exactly work out well, but this is different from Meta’s virtual world risk because AI now has actual, valuable applications. He continued, “The question still stands whether Meta can compete in the AI race and still be in a strong financial position.”
Ralph Schackart, an analyst at William Blair, added that although Meta’s generative AI expenditures would be more significant and take longer to implement than in the past, acting now will provide Meta a competitive advantage over competitors.
We think [Meta] is still spending wisely and will rank among the first runners in the race for artificial intelligence. He did, however, write on a shareholder note that this may require a while and provide investors with further evidence.
Two divisions—one devoted to ordinary consumers and the other to advertisers—are part of Meta’s AI investments. Regarding customers, the business has an innovative Meta chatbot using artificial intelligence that responds to inquiries on general knowledge. Then, there is Meta AI’s client side, which enables marketers to use AI to create advertisements on the business’s social media pages.
The business nevertheless exceeded analysts’ forecasts on both its highest and bottom lines during the quarter, reporting profits per share (EPS) of $4.71 on sales of $36.46 billion. Still, all of the attention was focused on Meta’s AI initiatives. Analysts were expecting an EPS of $4.30 on sales of $36.12 billion, based on projections provided by Bloomberg.
Nonetheless, the business stated that its Q2 revenue predictions are expected to be just below the middle of Wall Street’s expectations. Estimates for Meta’s second quarter revenue were $38.24 billion, but the company indicated it would make around $36.5 billion and $39 billion.
