Several months ago, I argued that Meta Platforms (NASDAQ:META) could “stay magnificent” given broader business initiatives at the time. Much of the momentum was due to AI hype, given the vast amount of data Meta has on literally everything. Nine months ago, any company that simply mentioned AI would jump in share price as hope sprung eternal for a whole new performance-generating avenue.
Now, things appear to be changing. Meta’s price action might be suggesting a bigger narrative shift at play. The overwhelming consensus after its earnings call is around the “when.”
When will AI translate into revenue as opposed to just cost? Revenue growth can be strong, but it won’t matter if it’s not translating into the bottom line.
It’s a challenging position to be in for CEO Mark Zuckerberg. Meta, at its size, must continue to push the envelope to maintain its competitive edge. AI is the clearest way to do that, especially given how quickly investors soured on the metaverse a few years back. But the company faces the pressing need to reassure investors about the viability of these investments, especially when so much good news was already priced into the stock.
Meta has been at the forefront of the AI hype cycle, investing billions in research with projects ranging from content recommendation algorithms to sophisticated virtual reality experiences. However, the catch-22 of pioneering technology is it may not payoff at all. The substantial costs associated with AI — ranging from computational resources to talent acquisition — could all turn out to just be one big money pit that doesn’t deliver. The recent earnings call and investor reaction to it underscores this.
Why Meta Platforms Stock Stumbled
This could end up being a bigger story that goes beyond Meta. I wonder now if that narrative has begun to shift as investors wonder when AI will translate into revenue and earnings across the board. Meta shares slumped Thursday precisely because of AI spending and an unclear path to monetization. I suspect this is the case for most companies that are on the AI bandwagon.
Everyone wants to use AI in their business, but it’s not clear exactly how to make money off it beyond marginal productivity enhancements.
With Nvidia (NASDAQ:NVDA) struggling to push to new highs and incredible volatility in Super Micro Computer (NASDAQ:SMCI) as a poster child for AI hype, the bubble may finally be bursting. And if that’s the case, some big shifts are coming.
On the date of publication, Michael Gayed 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.
