Meta's Zuckerberg Can't Calm Wall Street Nerves Over AI Spending, Stocks Fall 10%

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Meta stock ( META ) fell more than 10 percent Thursday after CEO Mark Zuckerberg revealed the social media company is pouring more cash into its AI efforts, spooking investors.

However, the CEO tried to assuage investors' concerns about the company's spending during Wednesday's earnings call, noting that Meta has made similar moves in the past when transitioning to other new technologies. are

“We've historically seen a lot of volatility in our stock during this stage of our product playbook, where we're investing in scaling a new product but not yet monetizing it. We saw this with Reels, Stories, as the News Feed moved to mobile, and more,” Zuckerberg said.

But he also acknowledged that it will take several years for Meta to make a return on its AI investment. In January, Zuckerberg announced via an Instagram post that Meta would buy about 350,000 Nvidia H100 AI chips by the end of the year. Although Nvidia does not release the exact price of its data center chips, estimates suggest that they cost between $20,000 and $40,000. That would put the estimated cost of Meta into the billions of dollars.

Meta CEO Mark Zuckerberg speaks as the letters AI for artificial intelligence appear on screen at the MetaConnect event on September 27, 2023 at the company's headquarters in Menlo Park, California. REUTERS/Carlos Barria/File Photo (Reuters)

Meta CFO Susan Lee backed up Zuckerberg's statements in her earnings note commentary, downgrading the company's full-year total expense estimate to between $96 billion and $99 billion, down from between $94 billion and $99 billion. Because of high infrastructure and legal costs. Lee said the company's investment will also increase in the coming years.

“While we are not providing guidance for the years beyond 2024, we expect capital expenditures to continue to increase next year as we support our ambitious AI research and product development efforts,” Lee said. will invest aggressively for

While Wall Street's initial reaction to Zuckerberg's comments has turned some investors off, experts say the investment will pay off in the long run from the company's Metaverse play.

“No doubt the meta is all over AI but to achieve its vision, the company will have to invest heavily in infrastructure. Mark Zuckerberg's 'heads up' is reminiscent of what he once said. said of Metaverse,” Mike Proulx, Forrester's vice president and director of research, said in a statement.

“It didn't go well, but it's different from Meta's Metaverse gamble because AI now has real and practical use cases. The question remains whether Meta can compete in the AI ​​race while maintaining a strong financial position. He added.

William Blair analyst Ralph Schockart, meanwhile, said the timing and scale of Meta's creative AI investments will be greater and longer than its earlier builds, but that making moves now will put Meta in a more competitive position against rivals.

“We believe [Meta] Still spending wisely and will eventually be one of the leaders in the AI ​​race. However, this may take some time and provide further evidence to investors,” he wrote in an investor note.

Meta's AI investments include two divisions, one dedicated to consumers and the other focused on advertisers. On the consumer front, the company has a new MetaAI chatbot that answers users' general knowledge questions. Then there's the customer side of Meta AI, which allows advertisers to run ad campaigns on the company's social platforms using AI.

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However, all the focus on Meta's AI investment overshadowed the fact that the company still beat analysts' expectations on the top and bottom lines for the quarter, posting earnings of $4.71 per share in the quarter. Posted earnings (EPS) on revenue of $36.46 billion. Analysts were expecting EPS of $4.30 on revenue of $36.12 billion, according to analyst estimates compiled by Bloomberg.

The company, however, said it expects Q2 revenue to be slightly off the middle of Wall Street's expectation. Meta said it sees second-quarter revenue between $36.5 billion and $39 billion. An estimated $38.24 billion was demanded.

Email Daniel Hawley at Follow him on Twitter. @DanielHowley.

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