Meta stock sinks as investors ‘caught off guard’ by AI spending plans
Global News
Shares of Meta sank nearly 15 per cent early Thursday, sparking a selloff in big tech stocks, after it revealed big spending plans for AI.
Shares of Meta Platforms sank nearly 15 per cent on Thursday, sparking a selloff in big tech stocks after the social media giant signaled its costly bet on AI would take years to pay off.
The premarket drop was set to erase more than US$180 billion from the company’s market value and triggered a drop of two per cent to five per cent in shares of AI-focused firms Microsoft, Alphabet and Snap.
Meta CEO Mark Zuckerberg, who floored Wall Street last year with his cost-cutting drive, said on a post-earnings call that costs would grow “meaningfully” over the coming years before the company makes “much revenue” from some of its AI products.
That stoked investor fears that Zuckerberg was plunging Meta into another costly endeavor at a time when its augmented and virtual reality business was losing billions of dollars each quarter.
“Investors were caught off guard by higher capital expenditure, exacerbated by slightly softer second-quarter revenue guide. As such, shares are entering the ‘penalty box,'” Baird Equity Research analysts said.
Meta forecast April-June revenue below estimates and raised the bottom end of its 2024 total expense forecast by $2 billion on Wednesday. It also raised the top end of its capital expenditure view as it invests in data centers essential to its efforts to catch up with AI frontrunners OpenAI and Microsoft.
The dour expectations follow a series of smash-hit earnings that helped Meta nearly triple its stock in 2023 and powered the biggest one-day market value gain by any company in Wall Street history, of $196 billion, in February after its maiden dividend.
Still, several analysts were positive on the investments, pointing to AI-driven engagement on content such as Instagram Reels and the warm reception for its virtual assistant Meta AI and early versions of its latest large language model, Llama 3.
The price for a barrel of benchmark U.S. crude shot up 8.5 per cent Thursday to settle at US$81.01 per barrel, the highest level since the summer of 2024.
Under the terms of the voluntary pledge, companies intend to build or buy new sources of power generation for their data centers and cover the expense of infrastructure upgrades.
Oil prices leaped, and stock markets slumped worldwide following military strikes by the United States and Israel on Iran, including Wall Street and the TSX.
'The core thesis is simple. Intelligence tools have changed what it means to build and run a company,' CEO Jack Dorsey said in a letter to shareholders of the financial tech firm.