Meta shares tank 11% as AI spending spree rattles investors
What's the story
Meta, the parent company of Facebook, WhatsApp, and Instagram, has witnessed a major dip in its stock prices. The company's shares fell by as much as 11% after it announced plans to increase spending on artificial intelligence (AI) projects. This comes even as profits continue to decline. For the April-June quarter, Meta reported a 28% year-on-year revenue growth to $61 billion but a 14% drop in profits to $6 billion.
Investment strategy
Increased budget for AI projects
Despite the profit decline, Meta has announced an increased budget for AI projects this year.
The company plans to spend $130 billion to $145 billion, up from the previous estimate of $125 billion given three months ago.
CEO Mark Zuckerberg emphasized that this investment is "accelerating every part of our core business."
He also revealed plans to sell their AI technology to other businesses in the future.
Financial outlook
Financial strain on Meta
Meta's CFO Susan Li told financial analysts that selling their technology to other businesses would help drive returns on their AI spending.
However, the company has not yet seen these new lines of business materialize.
For the quarter, Meta's free cash flow stood at $784 million, the lowest level in at least five years.
Analyst Mike Proulx from Forrester noted that "What it generated in cash this quarter almost all got eaten by AI infrastructure spending."
Future prospects
Optimism about AI investments
Despite the current financial strain, Zuckerberg remains optimistic about Meta's AI investments.
He said on an analyst call that these capabilities are driving engagement on Instagram and Facebook and helping smaller businesses with advertising.
The company is also working on developing AI agents or chatbots that operate autonomously.
"Soon, we'll have agents that can work 24/7 on your behalf," Zuckerberg said, adding he was very excited about this development.