A selloff in large technology firms was sparked by a 13% decline in Meta Platforms (META.O) shares on Thursday, when the social network company hinted that its expensive AI bet would take years to pay off.
The decline was expected to wipe off around $170 billion from the company’s market worth and cause shares of AI-focused companies to tumble by 3% to 4.2%. Microsoft (MSFT.O), Alphabet (GOOGL.O), and the advertising-dependent Snap (SNAP.N) all open new tabs.
In a post-earnings call, CEO of Meta Mark Zuckerberg, who stunned investors last year with his relentless pursuit of cost reduction, stated that expenses will rise “meaningfully” over the next several years before the business generates “much revenue” from any of its AI products.
This heightened investor concerns that Zuckerberg was pushing Meta into yet another expensive project at a time when the company’s augmented and virtual reality division was suffering billion-dollar quarterly losses.
“Higher capital expenditures took investors by surprise, and this was made worse by a somewhat lower revenue estimate for the second quarter. Because of this, shares are going into the “penalty box,” according to analysts at Baird Equity Research.
On Wednesday, Meta increased the lower end of its prediction for 2024 total expenses by $2 billion while forecasting revenue for April through June that was below forecasts. In an effort to catch up to Microsoft and OpenAI, the leaders in artificial intelligence, it has also increased the top end of its capital expenditure outlook by investing in data centers.
The gloomy predictions come after a string of phenomenal results that enabled Meta to almost treble its shares in 2023 and fuel the largest market value rise of $196 billion in a single day by any business in Wall Street ever in February following its first dividend.
