Proactive Investors - Meta Platforms Inc (NASDAQ:META, ETR:FB2A, SWX:FB) shares tumbled 14.5% in overnight trading and it is proving that hyping up AI plans doesn’t necessarily result in investor glee.
Especially if the company has a track record of hyping up ideas only for them to fail.
While first-quarter financials came in strong, albeit with some weaker guidance for the upcoming three months, the true crux of the share price slump originated from a 10% hike in planned capital expenditure.
Meta is now looking to spend between US$35 billion to US$40 billion.
Analysts believe that while the hike may have spooked investors, Zuckerberg’s justification of the increase sent many running.
“He said that the length of the AI investment cycle is 2 years, and only after that can Meta think about monetisation of AI,” Kathleen Brooks at XTB recounted.
“Patience is required before AI pays off, however, the market is not a patient beast.”
Calls for patience echo that of magnificent seven compatriot Tesla (NASDAQ:TSLA), with analysts believing investors will have to wait for some years before it can realise its dreams of autonomous vehicles.
The difference between the two? Tesla provided a short-term solution to its woes in the form of a lower-cost vehicle to battle against the rising popularity of cheap Chinese EVs.
“If [Meta’s earnings call] was a dinner party then AI would have been the only dish on offer, which seemed to irate the market more,” Brooks added.
She noted how the Facebook (NASDAQ:META) owner failed to address topics such as the impact of a US ban on TikTok and the developments of its Ray-Ban smart sunglasses.
Same old Zuck?
Monetisation from AI, or the lack thereof, and increased spending were the clear sticking points for investors during the conference. However, Russ Mould at AJ Bell believes the concerns are greater for Meta because of Zuckerberg’s track record.
“Previous concerns about a lack of discipline from Mark Zuckerburg have been reawakened,” he said.
Mould explained how it represents a sharp turn from last year when Meta pledged a “year of efficiency” through enacting job cuts and nursing its advertising division back to health.
“Zuckerburg has form for spending significant sums without the promise of making any money in the short term – see the money allocated to the metaverse,” Mould added.
Reality Labs, which is the home of the Metaverse, continues to suffer heavy losses years after being created and in Meta’s most recent quarter it posted a loss of more than US$3 billion, with little year-on-year improvement.
Mould concluded: “At least AI is better understood and more tangible, but it still requires a lot to be taken on trust that Meta.
“And when it comes to Zuckerburg it seems the trust just isn’t there.”