Shares in Meta, the parent company of Facebook, took a significant hit on Thursday as investors reacted negatively to the company’s plans to ramp up investment in artificial intelligence (AI).
The stock tumbled by as much as 15% to $421.40 when trading on the Nasdaq commenced, resulting in a staggering $183 billion loss in market value.
This dramatic sell-off, which commenced during after-hours trading on Wednesday, reflects investor concerns over Meta’s ambitious AI expenditure plans.
Investor Concerns Mount as Meta Pivots Towards AI Investment Strategy
Competing fiercely with tech giants like Microsoft and Google in the AI arena, Meta aims to harness the vast potential of artificial intelligence.
While the rewards could be substantial, the company’s recent earnings report highlighted the hefty costs associated with developing cutting-edge AI technologies.
Despite reporting a doubling in first-quarter profits year-on-year and a 27% increase in revenue, Meta’s announcement of a potential $5 billion surge in AI investments rattled shareholders. The prospect of further escalations in spending in subsequent years added to investor unease.
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, emphasized the significance of Meta’s AI ambitions while cautioning against neglecting its core advertising business.
As Meta prepares to pour billions into AI research and development, maintaining its dominance in the digital advertising market remains imperative.
CEO Mark Zuckerberg underscored Meta’s commitment to becoming a leader in AI during a call with investors.
He outlined plans for substantial investment in advanced AI models, acknowledging the need for increased spending before realizing revenue from new AI products.
However, weaker-than-expected guidance for the current quarter has further dampened investor sentiment. Meta’s forecasted revenue of $36.5-39 billion fell short of analyst projections, contributing to concerns about the company’s future performance.
In response to these developments, analysts at JP Morgan have revised down their price target for Meta’s stock for December 2024.
The new target of $480 reflects ongoing apprehensions among investors regarding Meta’s aggressive AI spending strategy and its potential impact on financial performance moving forward.
