Meta Platforms (META.O), opens new tab disappointed investors on Wednesday with forecasts of higher expenses and lighter-than-expected revenue, knocking nearly $200 billion off its stock market value and raising fears the surging cost of AI is outpacing its benefits.
Shares of the Facebook and Instagram parent dropped about 15% in extended trade following the report, its market capitalization plunging to about $1 trillion.
The late-day slump in Meta’s stock value was just short of the $232 billion one-day loss suffered on Feb. 3, 2022, which was the record one-day loss of market capitalization for any U.S. company.
Alphabet (GOOGL.O), opens new tab shares fell 3% in extended trade and Microsoft (MSFT.O), opens new tab declined 2%, with concerns that Wall Street may have underestimated the cost of the AI race hitting those Big Tech companies ahead of their reports on Thursday.
“Investors are skeptical of the growing AI spending. Some of those investments could take years to pay off,” said Jasmine Enberg, principal analyst at Insider Intelligence.
“But Meta is in the AI race to win it, and Meta AI could be a dark horse. It has a built-in audience through its existing apps, and it will have an advantage in eventual monetization through its ad ecosystem,” Enberg said.
The company has been updating its ad-buying products with AI tools and short video formats to boost revenue growth, while also introducing new AI features like a chat assistant to drive engagement on its social media properties.
It announced last week that it is giving its Meta AI assistant more prominent billing across its suite of apps, meaning it will start to see how popular the product is with users in the second quarter.
“For all Meta’s bold AI plans, it can’t afford to take its eye off the nucleus of the business – its core advertising activities,” said Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown.
The company’s metaverse-oriented Reality Labs division missed expectations for the first quarter, posting sales of $440 million. Investors had been expecting $475 million, according to LSEG data.
The unit’s sales leaped 30% from the year prior, but were still below the average revenue of $523 million posted in previous first-quarter reports since Meta started disclosing Reality Labs revenue in 2021.
Reality Labs lost $3.8 billion in the quarter, putting it on track this year to match the $16 billion it lost over the course of 2023.
