(Bloomberg) – Metaplatforms Inc. says it will spend billions more this year than previously expected as it continues to invest in artificial intelligence, making its bet on futuristic technology a final move. Questions have been raised about whether investors will be rewarded. Stock prices fell in extended trading.
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Facebook's parent company is pouring ever more resources into artificial intelligence, which requires heavy investments in computing power, even as Alphabet Inc. competes for supremacy over this rapidly evolving technology. The company is embroiled in an arms race with rivals ranging from Microsoft to Microsoft. The Menlo Park, Calif.-based company has raised its annual cost estimate and now believes capital expenditures will be between $35 billion and $40 billion. The company previously estimated costs related to servers, AI hardware, data centers and more would be between $30 billion and $37 billion.
“We expect capital spending to continue to increase next year as we invest aggressively to support our ambitious AI research and product development efforts,” Chief Financial Officer Susan Lee said in a statement. “I am doing so,” he said.
At the same time, the social networking company predicted second-quarter revenue of $36.5 billion to $39 billion, but the median of that forecast was lower than analysts' average forecast.
Those metrics overshadowed an otherwise strong first quarter in which sales were $36.5 billion, up more than 27% year-over-year. And profits more than doubled to $12.4 billion.
The stock price fell as much as 19% in after-hours trading. The stock is up 39% since the beginning of the year as of market close, and has been trading near all-time highs over the last month, partly reflecting the excitement around AI. Meta was one of the best-performing stocks among big tech companies.
“None of Meta's bold AI plans can take our eyes off the core of the business, which is our core advertising activity,” Hargreaves Lansdown analyst Sophie Land-Yates said in a note Wednesday. “It's not true,” he wrote. “That doesn’t mean we ignore AI, but it does mean we need to make targeted spending that aligns with a clear strategic view.”
Last quarter, Meta announced its first quarterly dividend in its history, as well as a $50 billion share buyback, due to frustration with the company's aggressive spending on technology that hasn't yet been fully profitable. It was an effort to placate investors. CEO Mark Zuckerberg has spent years pouring money into building a so-called metaverse, a virtual world where people could one day play and work.
Reality Labs, a meta division focused on betting on the future, reported a loss of $3.85 billion in the first quarter, about the same as a year ago. The division, which also oversees VR headsets and meta Ray-Ban smart glasses, reported annual losses of more than $16 billion in 2023.
But in recent months, Zuckerberg has made AI a priority, and with OpenAI releasing its ChatGPT chatbot in 2022 and sparking a frenzy of competition and development among big tech companies, Meta is back on track. Focused on technology. Meta has begun implementing his AI into every aspect of his business, from Instagram and Facebook to smart glasses.
The company announced plans for a new $800 million data center in January and is also developing its own chips for artificial intelligence services. Meta is also working on several new versions of its large-scale language model, known as Llama, to power chatbots and other AI services.
Read more: How AI replaced the Metaverse as Zuckerberg's top priority
Zuckerberg said on a conference call with investors that Meta will invest “significantly” in AI-related projects. He said he expects these investments to grow “meaningfully” by the time Meta receives significant returns from many of these new initiatives. “Smart investors” will see the long-term potential of this effort outweigh the short-term costs, Zuckerberg said.
The company reiterated its broader spending plans for 2024, saying it will spend between $96 billion and $99 billion in the calendar year, up slightly from its lower-end target of $94 billion to $99 billion. The company previously said much of the money would go towards long-term investments in augmented reality and virtual reality, as well as infrastructure costs.
Mehta's mixed reports came on the same day that President Joe Biden signed a bill forcing TikTok's parent company ByteDance to sell the popular video service in the U.S. or face a ban. It was done. Meta's short video Reels offering is a clone of his TikTok, so the potential removal of a major competitor could be a boost to Meta's advertising business.
Lee said on a conference call with analysts that Reels accounts for about 50% of the time people spend on Instagram. When asked specifically about TikTok's bill, Lee said it was too early for the company to understand the potential impact.
Meta has had a turbulent few years in recent years, with a spike in user numbers and activity on the platform during the coronavirus lockdown, followed by a decline in advertising activity in 2022. Meta also hired heavily when the economy was good, leading to about 10,000 layoffs. 2023 is what Zuckerberg called “the year of efficiency.”
These painful moves paved the way for the significant increase in profits the company is currently seeing. First-quarter revenue was a record high for the period. More and more people are coming back to Meta's products.
Zuckerberg said the old Twitter-like Threads app, released last July, now has more than 150 million monthly active users, including Taylor Swift. .
–With assistance from Carmen Reinicke.
(Updated with details throughout. A previous version of this article corrected Mark Zuckerberg's full name.)
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