The stock market absolutely, positively did not like Meta Platforms (NASDAQ:META) first-quarter earnings report. Even though the social media platform beat analyst expectations on the top and bottom line as advertising revenue soared, Meta Platforms’ stock tumbled 10%.
The reason for the downdraft was a seemingly weak outlook as the owner of Facebook, Instagram and WhatsApp said it would invest heavily in artificial intelligence. That brought back bad memories of Meta’s going all-in on the metaverse, a decision for which it is still paying.
Although AI has opened up massive profits and opportunities for companies, investors weren’t keen on getting their hands burned a second time by financing CEO Mark Zuckerberg’s vanity projects. They sold off the stock but that doesn’t mean you should. AI is much different from the metaverse and Meta Platforms is smart to be diving in.
Meta Platforms Stock and the Metaverse
The metaverse was supposed to be the future of social interaction. It is an alternate reality where we would go to work, play and meet people. We could completely reinvent ourselves and Meta was going all-in.
The most obvious indication was changing Facebook’s corporate identity to Meta Platforms. It was seen as the clearest sign that this is where Zuckerberg wanted his company to reside.
Unfortunately, despite many companies spending millions of dollars to participate in this brave new world, no one really quite knew what to make of whatever the metaverse was supposed to be.
Even its most enthusiastic advocates had a difficult time putting a hard and fast definition of it. The reality turned out to be much different.
People actually didn’t want to be plugged in, turned on and connected to their computers 24/7. It was more of a dystopian hellscape than a future anyone wanted to be a part of.
The Reality Labs division has lost $45 billion so far and there is no end in sight to the red ink being spilled. Meta Platforms is expecting the unit’s operating losses to increase “meaningfully” year-over-year as it invests in more product development and projects.
Now investors see Zuckerberg wanting to also spend billions on AI and they didn’t want any part of it.
AI to drive growth
CFO Susan Li said Meta’s capital expenditures will surge this year to between $35 billion and $40 billion, a $3 billion to $5 billion increase from its prior forecast.
Though she wasn’t providing any guidance beyond fiscal year 2025, she said Meta expects “our ambitious long-term AI research and product development efforts will require growing infrastructure investments beyond this year.”
Considering Meta would also continue spending on the metaverse as well, this was a one-two punch investors couldn’t stomach. Yet AI is not the same as the metaverse.
Where one is more like a fantasy playground, the other has real-world implications. AI is already delivering results, including for Meta Platforms.
It fully rolled out its Meta AI assistant and other AI chatbot opportunities at the end of last year. It also started testing over 20 generative AI features across Meta’s Family of Apps. Those apps also saw tremendous growth. Daily active people across Facebook, Instagram and WhatsApp jumped 7% from last year to an average 3.24 billion for March 2024.
The advanced capabilities of Meta’s new Llama 3 AI model are getting comparisons to OpenAI and Anthropic. Meta made the model open-source, which Zuckerberg believes not only improves the platform but also lets companies standardize on it. That can help pave the way for Llama 3 and future iterations to become the industry standard.
A Beat the Crowd
The sell-off of Meta Platforms stock is shortsighted as it equates its AI efforts with those of its metaverse ambitions. The two are not comparable.
I’d prefer Zuckerberg and Meta take the “L” on the technology and stop draining away resources. But Meta Platforms can actually afford these losses without impeding its progress elsewhere.
That’s why investors should view the newly discounted stock price as an opportunity to buy in. As the apparent benefits of the generative AI platform materialize, the market will get behind META stock once more. Buying now puts you ahead of the curve.
On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
