(Reuters) – Meta shares sank almost 15% this Thursday, triggering a sale of shares in other technology companies after the social media giant signaled that its bet on artificial intelligence will take years to pay off.
The drop in Meta’s shares before markets opened reduced the company’s market value by more than $180 billion and triggered declines of 2% to 5% in shares of AI-focused companies such as Microsoft, Alphabet and Snap.
Meta Chief Executive Mark Zuckerberg, who surprised Wall Street last year with his cost-cutting initiative, told analysts that costs will rise “significantly” in the coming years before the company earns “a lot of revenue” from some of its AI products.
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That has fueled investor fears that Zuckerberg is plunging Meta into another costly venture at a time when bets on augmented and virtual reality are racking up billions of dollars in losses each quarter.
“Investors were caught off guard by the surge in investment, exacerbated by slightly softer revenue forecasts in the second quarter. As such, stocks are entering the ‘penalty box,’” said analysts at Baird Equity Research.
Target forecast revenue for April-June below market estimates and increased the lower bound of the total expenditure estimate for 2024 by 2 billion dollars. The company also raised the upper limit of its investment estimate as it injects resources into data centers to try to catch up to OpenAI and Microsoft.
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The weaker expectations follow a series of surprise results that helped Meta nearly triple its stock value in 2023 and produce the largest one-day market value gain in Wall Street history at $196 billion. , in February, after the announcement of the company’s first dividend.
However, several analysts were positive about the investments, pointing to AI-driven engagement on Instagram and warm reception of the Meta AI virtual assistant and early versions of the recent broad language model, Llama 3.
“We think this time is different,” Evercore ISI analysts said. “This investment cycle comes from a position of strength as management continues to see a healthy ad demand environment in the second quarter and improving user engagement.”
Overall, 17 analysts reduced target prices for Meta shares, while eight increased them, according to data from Lseg. The average price target now stands at $525, about 6% above the previous close.
“Being on the offensive with investment spending is generally great, but on the Internet it’s very difficult to guarantee which of those investments will pay off and when,” said Mark Shmulik, an analyst at Bernstein.
“All of this culminates in investors wondering how long this investment cycle will last, whether the opportunity and return are real, all in a scenario of slowing growth.”
