Making sense of market moves
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It seems like the biggest tech companies are in a race to see who can spend the most this year. Meta is just the latest tech behemoth to raise eyebrows with its monster AI spending.
But Meta, unlike many of its Big Tech peers, actually has something to show for its investments.
While the company still has a ways to go before it sees the huge returns on AI that executives are hoping for, AI is already boosting revenue for the tech giant via the company’s advertising business.
“So the ways that it is improving recommendations and helping people find better content, as well as making the advertising experiences more effective,” said CEO Mark Zuckerberg of AI. “I think there is a lot of upside there. Those are already products that are at scale. The AI work that we are doing is going to improve that. It will improve the experience and the business results.”
Meta gave investors plenty of other good news in its second-quarter earnings, catalyzing a 4.82% jump in its shares on Thursday.
- Earnings per share (EPS) of $5.16 beat estimates of $4.74 for the second quarter.
- Revenue came in at $39.07 billion, beating estimates of $38.3 billion and rising 22% year over year.
- It also reported strong advertising demand, with ad pricing increasing 10% year over year.
More AI spending ahead
But just because AI investments are beginning to pay off doesn’t mean Meta has plans to turn off the money faucet anytime soon.
CFO Susan Li warned in the company’s second-quarter earnings call that, “[W]e expect infrastructure costs will be a significant driver of expense growth,” while also noting the company wouldn’t give investors a specific number in the company’s earnings statement. The company said its capital spending forecast will be in the high range of Li’s estimate of $96 billion to $99 billion.
And despite what Zuckerberg’s well-documented fashion transformation may lead you to believe, the “significant” capital spending isn’t fueling his personal collection of $1,500 Balmain T-shirts and cool chains.
Just last week, the internet’s newest hypebeast himself announced Meta was planning to roll out another open source language model, Llama 3.1. But AI infrastructure, including data centers, seems to be guzzling most of the cash at the moment.
“We aren’t convinced Meta will earn strong returns on its infrastructure investment, but we expect the firm will continue to generate strong cash flow regardless of the direction AI takes,” wrote Michael Hodel, director of communications services equity research at Morningstar, in a note today.
These early AI trends can be fickle, as Meta recently learned when it turned out nobody wanted to play with their weird AI celebrity look-alikes. But, hey, there’s still AI in Ray-Bans!
So even if its AI ventures haven’t turned an enormous profit just yet, there’s still enough hits to keep investors on board.—LB