Meta is betting its farm on AI, making investors wary. During an earnings call Wednesday, CEO Mark Zuckerberg announced that the tech giant would raise its capital spending estimates by billions of dollars, including spending on AI training and data centers. We expect the scale to expand further in the future.
Mehta raised his spending forecast to $35 billion to $40 billion from $30 billion to $37 billion. “We expect capital investment to continue to increase.” [in 2025] We are actively investing to support our ambitious AI research and product development efforts,” said CFO Susan Lee.
Investors were spooked by these huge spending amounts, and the stock price plummeted by up to 16% immediately after the announcement. But Deutsche Bank said shareholders were wrong to fear Meta's huge bet on AI, saying Meta's pole position in the advertising game makes it a prime candidate to benefit in the long run. There is.
“Meta, the fastest growing large-scale advertising platform, makes the case that it is indeed leaning towards Gen AI from a position of strength,” the bank said in a research note published after the results. “Meta is in an investment cycle. We've been here a few times now and each time we had the same outcome…It's been good for Meta's long-term stock value.”
Meta has already deployed multiple consumer AI tools, including AI-enabled smart glasses built in collaboration with Ray-Ban and its open-source Llama 3 AI model. But Deutsche Bank says AI's biggest change for meta is in recommendation algorithms. Meta's most popular apps, including Instagram, Facebook, and Threads, are already leveraging AI to push customized content to users' feeds, and they've all proven to generate revenue.
Deutsche Bank notes that on Facebook, where viewing content posted by users' friends is a common app, 30% of viewed posts are AI recommendations, and on Instagram, that number rises to 50%. did. By leveraging AI in the Reels algorithm, he increased the time users spend on the app by 8-10%. Given that Meta already understands the advertising game for these apps, using AI recommendations to increase the time users spend in the app is an obvious path to increasing revenue.
“While AI-driven ranking and targeting improvements continue to improve advertising efficiency, Reels' advertising load continues to be concentrated in Feed and Stories loads,” Deutsche Bank wrote. “We believe Gen AI will drive Meta’s next growth by: 1) increasing user engagement and use cases with products and services like Meta AI and Creator Agents; and 2) increasing user engagement and use cases across the app. Recommendations powered by integrated AI, which now drives over 50% of the content watched on IG. [and] 3) Drive automation for advertisers. ”
However, investors may not see the results right away. Zuckerberg said at the company's financial results conference, “To date, we have seen significant stock price volatility at this stage of our product strategy, where we have invested in new products and expanded scale, but have not yet achieved profitability.'' ” he said. Meta has already spent nearly $50 billion on Metaverse efforts, but has yet to see any tangible benefits. And Meta suggests that funding for AI plans is still in its infancy, meaning investors need to be prepared for even higher spending in the future.
“Meta is making larger AI investments than we expected, which will likely result in higher capital expenditures for a much longer period of time,” Deutsche Bank said.
But in the long term, Deutsche Bank argues, the investment will pay big dividends in the long run due to the usefulness of AI in advertising, which is the backbone of Facebook's business model.
“Given the reasonable valuation following last night's exit, strong shareholder return story, and fundamentally superior advertising platform that is growing share, we think it would be prudent to view the company's expanding AI ambitions as a positive. ” Deutsche Bank wrote.
