Meta Platforms Inc. shares slid after the company raised its spending outlook for the year, reigniting fears that the historic levels of investment it is making to catch up in the artificial intelligence race will not pay off.
Capital Expenditure Surge
The social-media giant projected full-year capital expenditures between US$125 billion and US$145 billion, far exceeding analysts' estimates and marking a roughly 7.4 per cent increase from what the company had previously projected. The company is dealing with higher component pricing and additional data center costs, Chief Financial Officer Susan Li said in a statement.
Meta chief executive Mark Zuckerberg has signaled that his company will spend hundreds of billions of dollars on AI infrastructure before the end of the decade. And that was before a memory chip shortage triggered a surge in prices. The firm has announced billion-dollar deals with Nvidia Corp., Advanced Micro Devices Inc. and Broadcom Inc. for chips and other hardware and is building several massive data centers to power its efforts.
Market Reaction
Meta shares fell seven per cent in after-hours trading. They had risen 1.4 per cent this year through Wednesday's close in New York. The higher spending increases the stakes for Meta given it is using its own AI system, which still trails frontier lab peers, Bloomberg Intelligence analyst Mandeep Singh said in a note. So far, Meta's stand-alone app has not had the amount of engagement vs. other frontier labs.
Meta was not the only major technology company raising spending. Amazon.com Inc. said on Wednesday that it dropped more than anticipated on expanding data center capacity in the first quarter. Alphabet Inc.'s Google raised its capital expenditure projections to as much as US$190 billion for this year. But Google still managed to spur a rally after beating on quarterly revenue and profit, signaling confidence in the company's AI bets.
Financial Results
Meta reported first-quarter net income of US$26.8 billion, which included a one-time, non-cash income tax benefit of US$8 billion due to the implementation of the U.S. tax policy signed into law in July. Analysts had estimated non-adjusted net income of US$17.2 billion, without anticipating the benefit. Meta reported US$56.3 billion in first-quarter sales, beating Wall Street's estimate of US$55.51 billion. It projected sales of US$58 billion to US$61 billion for this quarter, roughly in line with expectations.
Daily active people across all of Meta's social media platforms slightly declined in the first quarter to 3.56 billion. The company cited the internet disruptions in Iran and Russia's restrictions on WhatsApp access. That marked the first drop since the company began using that metric.
Cost-Cutting Measures
To offset its AI spending, Meta has recently imposed a number of cost-cutting measures. Last week, it alerted staff in an internal memo that it would be cutting roughly 8,000 jobs and would not be filling 6,000 open roles. The company had already carried out other, more limited cuts earlier this year that hit its hardware division Reality Labs, among other teams.
