Meta stock (META) fell more than 10% on Thursday after CEO Mark Zuckerberg revealed the social media company was pouring more money into AI efforts, sending investors into a tailspin. It surprised me.
But on Wednesday’s earnings call, the CEO sought to allay investor concerns about Meta’s spending by pointing out that Meta has made similar moves in the past as it transitioned to other new technologies.
“Traditionally, at this stage in our product strategy, when we are investing in scaling new products but have not yet achieved profitability, we have experienced large fluctuations in stock price.News Feed Goes Mobile As we’ve done that, we’ve seen this in Reels and Stories and things like that,” Zuckerberg said.
But he acknowledged that it will likely take several years for Meta to turn a profit on its AI investments. In January, Zuckerberg Announced through an Instagram post Meta plans to purchase approximately 350,000 Nvidia H100 AI chips by the end of the year. Nvidia has not released the exact price of its data center chips, but estimates indicate that they cost between $20,000 and $40,000 each. The estimated cost to Meta would be in the billions of dollars.
Susan Lee, Meta’s chief financial officer, backed up Zuckerberg’s comments in an earnings note commentary, raising the company’s full-year cost estimate to $94 billion to $99 billion due to higher infrastructure and legal costs. from a range of $96 billion to $99 billion. Lee said the company’s investments will also increase in the coming years.
“While we are not providing guidance beyond 2024, we expect capital spending to continue to increase next year as we invest aggressively to support our ambitious AI research and product development efforts. ,” Lee said.
Wall Street’s initial reaction to Zuckerberg’s comments may have put off some investors, but experts say the investment could outperform, say, the company’s Metaverse strategy in the long run. It is said that the quality is high.
“There’s no question that Meta is committed to AI, but to achieve that vision the company will need to make significant investments in infrastructure. Mark Zuckerberg’s ‘Heads Up’ reminded me of what he once said about the Metaverse,” Forrester Vice President and Research Director Mike Proulx said in a statement.
“It didn’t always work out, but this is different from Meta’s metaverse gamble because AI has real-world, practical use cases. Meta enters the AI race while maintaining a strong financial position.” “The question remains whether it can be done,” he added.
Meanwhile, Ralph Schuckert, an analyst at William Blair, said the timing and scale of investing in meta-generating AI would be larger and longer-term than previous build-ups, but it’s important to take action now. said Meta will be in a more competitive position against its competitors.
“we believe [Meta] remains a prudent spender and will eventually become one of the leaders in the AI race. “However, this may take time and we will need to provide further evidence to investors,” he wrote in a note to investors.
Meta’s AI investments have two divisions, one focused on consumer users and the other focused on advertisers. For consumers, there’s the company’s new Meta AI chatbot that answers users’ general knowledge questions. Next, on the customer side of Meta AI, advertisers will be able to use AI to build ad campaigns on the company’s social platform.
But all the attention to Meta’s AI investments comes as the company still beat analysts’ expectations on revenue and bottom line for the quarter, posting earnings per share (EPS) of $4.71 and revenue of $364. It was overshadowed by the fact that it made a record $60 million. Analysts had expected EPS of $4.30 and revenue of $36.12 billion, according to analyst estimates compiled by Bloomberg.
But the company said it expects second-quarter sales to fall just short of the midpoint of Wall Street expectations. Meta said second-quarter sales will be between $36.5 billion and $39 billion. The estimate was $38.24 billion.
Email Daniel Howley at dhowley@yahoofinance.com. Follow him on Twitter @Daniel Howley.
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