Meta Faces 15% Stock Drop Amid Plans for Aggressive AI Investment

  • Editor
  • May 7, 2024
meta-faces-15-stock-drop-amid-plans-for-aggressive-ai-investment-due-to- concerns over its aggressive-investments-in -AI-and-mixed-reality

Meta’s shares took a significant hit, dropping over 15% in after-hours trading, despite the company reporting stronger-than-expected earnings for the first quarter in Artificial Intelligence.

The decline came as investors reacted nervously to the company’s aggressive investment plans in areas like AI and mixed reality. The tech giant reported a 27% increase in revenue to $28.65 billion from the same quarter last year, marking its fastest growth rate since 2021.

Net income saw a substantial rise, more than doubling to $12.37 billion, or $4.71 per share, compared to $5.71 billion, or $2.20 per share, a year earlier. Despite these robust financials, Meta’s outlook for the coming quarter was less than what analysts had expected.

The company forecasted sales between $36.5 billion and $39 billion for the next quarter, with a midpoint of $37.75 billion. This estimate fell below the average analyst expectation of $38.3 billion.

Here’s what critics have got to say about the sudden stock drop:

CEO Mark Zuckerberg’s emphasis on investing in non-profitable sectors such as mixed reality and smart glasses further fueled the sell-off. These comments came early in the earnings call, overshadowing the positive financial results.

Meta has ceased reporting its daily and monthly active users, opting instead for a metric it calls “family daily active people,” which was 3.24 billion for March 2024, showing a 7% increase from the previous year.

Despite achieving about a 40% increase in stock price this year, following a near tripling last year, Meta’s ambitious AI investment plans have left little margin for error.

Critics on Reddit believe it’s a reverse week:

byu/MexiNerd from discussion

Last February, Zuckerberg declared 2023 the “year of efficiency,” leading to significant job cuts and a more streamlined company structure.

Meta plans to ramp up its capital expenditures to between $35 billion and $40 billion in 2024, up from a previous range of $30 billion to $37 billion, to accelerate its infrastructure investments for its AI roadmap.

The company’s advertising revenue, which makes up the majority of its business, grew by 27% to $35.64 billion.

This growth is supported by a stabilizing economy and increased spending by Chinese discount retailers like Temu and Shein, which are heavily investing in ads on Facebook and Instagram.

Temu-Meta-Ads-leading-to-growth-in Meta-advertising-revenue

However, Meta’s Reality Labs division, responsible for developing its metaverse technology, continues to operate at a loss.

The unit reported $440 million in sales for the quarter but incurred $3.85 billion in losses, accumulating over $45 billion in losses since the end of 2020.

While Meta’s aggressive AI and tech investments show long-term potential, current financial pressures and investor concerns reflect the risky nature of these ventures.

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Dave Andre


Digital marketing enthusiast by day, nature wanderer by dusk. Dave Andre blends two decades of AI and SaaS expertise into impactful strategies for SMEs. His weekends? Lost in books on tech trends and rejuvenating on scenic trails.

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