Today: July 24, 2024
April 25, 2024

Meta Chief Zuckerberg Urges Patience as AI Investments Rattle Investors

Meta Platforms Inc., under the helm of CEO Mark Zuckerberg, has announced plans to increase spending on artificial intelligence (AI), leaving investors jittery as the company predicts slower sales growth. Zuckerberg sought to reassure Wall Street during Meta’s first-quarter earnings call after the disclosure that the company would invest billions more than initially projected this year.

The increased spending, primarily aimed at AI development, triggered a steep drop in Meta’s shares, plummeting as much as 19 percent in after-hours trading. Despite this, Zuckerberg emphasized the long-term benefits of their technological investments and urged investors to remain patient.

During the earnings call, Zuckerberg highlighted AI’s role in Meta’s recent user growth and advertising success, citing improvements in recommendation algorithms. The company is intensifying its focus on AI, acknowledging it as essential in the race with competitors like Alphabet Inc. and Microsoft Corp. for dominance in this rapidly evolving field.

Zuckerberg cautioned that returns on AI investments would take time, possibly years, to materialize, emphasizing the need for patience among shareholders. This aligns with Meta’s strategy of betting on futuristic technologies like the metaverse, VR headsets, and smart glasses, despite the hefty costs involved.

Reality Labs, Meta’s division spearheading these efforts, faced a $16 billion loss in 2023. However, Zuckerberg remains optimistic, pointing to recent successes such as the AI chatbot and Ray-Ban smart glasses as indicators of further investment necessity.

“We’ve shown that we can build leading models and be the leading AI company in the world,” Zuckerberg stated. “And that opens up a lot of additional opportunities beyond just the most obvious ones for us.”

To support its ambitious AI research and product development, Meta plans to increase its capital expenditures to $35 billion to $40 billion for the year. Chief Financial Officer Susan Li indicated that these expenditures would continue to rise in 2025.

Despite a solid first quarter with revenue surpassing $36.5 billion, an increase of over 27 percent year-over-year, Meta’s projected second-quarter sales fell below analysts’ estimates. This overshadowed the positive quarterly results and contributed to the stock’s decline, which had previously been up 39 percent for the year.

Sophie Lund-Yates, an analyst at Hargreaves Lansdown, cautioned Meta against losing focus on its core advertising activities amid its bold AI plans. She emphasized the importance of targeted spending aligned with a clear strategic vision.

In response to investor concerns, Meta initiated a $50 billion stock buyback and announced its first-ever quarterly dividend in the previous quarter. However, Zuckerberg’s recent prioritization of AI underscores Meta’s commitment to technological innovation following the release of OpenAI’s ChatGPT chatbot in 2022.

Meta’s AI integration extends across its platforms, from Instagram to its smart glasses, with plans for an $800 million data center and the development of proprietary AI chips. The company expects to spend between $96 billion and $99 billion in 2024, primarily on infrastructure and long-term investments in augmented and virtual reality.

President Joe Biden’s signing of legislation targeting TikTok’s parent company, ByteDance Ltd., may provide Meta with a competitive advantage in the advertising space, particularly with its Reels feature, which mimics TikTok. However, the potential impact of the legislation on Meta’s business remains uncertain.

Meta has weathered a turbulent period, including a surge in user activity during the pandemic followed by a dip in advertising in 2022. The company responded with significant job cuts in 2023, leading to increased profitability and record-breaking first-quarter revenue. With user engagement on the rise again, Meta remains optimistic about its future despite short-term challenges.

Jhumpa Lahiri

Jhumpa Lahiri

At our news portal, we strive to be your go-to destination for staying informed about the latest developments, breaking news, and insightful analysis across a diverse range of topics. Whether you're interested in politics, technology, health, entertainment, or global affairs, we've got you covered with comprehensive coverage and in-depth reporting.

Previous Story

New US Regulations Ensure Automatic Refunds for Cancelled Flights, Protect Consumers from Surprise Fees

Next Story

India’s Credit Card Spending Soars 27% to Rs 18.26 Trillion in FY24: RBI Report

Latest from Blog

Go toTop

Don't Miss