Meta (META) stock fell more than 10% on Thursday after CEO Mark Zuckerberg revealed the social media company was investing more money in its AI efforts, spooking investors.
The CEO, however, attempted to allay investor concerns about the company’s spending during Wednesday’s earnings call, noting that Meta has taken similar steps when transitioning to other new technologies in the past .
“We have historically seen a lot of volatility in our stock during this phase of our product strategy, where we are investing in scaling a new product but not yet monetizing it. We saw it with Reels, Stories, in the transition from News Feed to mobile, and much more,” Zuckerberg said.
But he also admitted that it will likely be years before Meta turns a profit on its AI investments. In January, Zuckerberg announced via an Instagram post that Meta will buy some 350,000 Nvidia H100 AI chips by the end of the year. Although Nvidia doesn’t disclose the exact price of its data center chips, estimates indicate they cost between $20,000 and $40,000 apiece. This would bring Meta’s estimated costs into the billions of dollars.
Susan Li, Meta’s chief financial officer, confirmed Zuckerberg’s statements in her earnings commentary, increasing the company’s estimate for the company’s total expenses for the full year by a range of between $94 billion and $99 billion. from $96 billion to $99 billion due to higher infrastructure and legal costs. Li said the company’s investments would also increase in the coming years.
“While we are not providing forecasts for years beyond 2024, we expect capital spending to continue to increase next year as we invest aggressively to support our ambitious research efforts and product development in AI,” said Mr. Li.
Although Wall Street’s early reaction to Zuckerberg’s comments may have turned off some investors, experts say the investments will likely be more profitable in the long run than, say, the company’s metaverse game.
“There’s no doubt that Meta is going all-in on AI, but to realize its vision, the company needs to make big investments in infrastructure. Mark Zuckerberg’s warning is reminiscent of what he once said about the metaverse,” vice president and director of research at Forrester. Mike Proulx said in a statement.
“It didn’t really go well, but it’s different from Meta’s metaverse bet because AI now has real, practical use cases. The question remains whether Meta can compete in the AI race while maintaining a strong financial position,” he added.
William Blair analyst Ralph Schackart, meanwhile, said that while the timing and scale of Meta’s investments in generative AI will be larger and longer-term than its previous developments, taking action now will place Meta in a more competitive position…
