Meta shares fall as frustration grows over AI spending plans

Meta's shares experienced a significant drop on Wednesday as investors expressed concerns over the company's plan to continue investing heavily in artificial intelligence (AI) projects despite declining profits. The social media giant's results for the quarter from April to June showed a 28% increase in revenue to $61bn, while profits fell by 14% to $6bn.

Meta disclosed that it would allocate $130bn to $145bn for AI spending this year, up from its previous plan of $125bn. CEO Mark Zuckerberg stated that AI spending would accelerate various aspects of the company's core business and that the firm planned to start selling its AI technology to other companies. However, CFO Susan Li noted that turning these new ventures into revenue has not yet materialized.

Meta's free cash flow for the quarter, which is the amount remaining after accounting for expenses, was $784m, the lowest in the company's records for at least five years. Analyst Mike Proulx from Forrester commented that Meta's AI initiatives might be perceived as either diversification or distraction. This situation is reminiscent of Meta's previous "metaverse" missteps, where the company spent billions on virtual reality experiences that failed to attract users.

Google also reported its lowest ever cash reserves, causing its stock to plummet. Zuckerberg defended the AI spending, expressing optimism about the company's ability to generate significant returns from AI models and agents. These agents, or AI chatbots, are expected to enhance user engagement on Instagram and Facebook and empower smaller businesses with advertising capabilities.

Zuckerberg also hinted at the development of autonomous AI agents that could operate 24/7 on behalf of users. Meta plans to make its Muse Spark AI model more accessible to other companies by simplifying integration and focusing on API and productivity services. While Microsoft, another major player in the AI space, reported a rise in its stock following its quarterly and full-year results, Meta's situation highlights the challenge of balancing substantial AI investments with consistent financial returns.