Meta puts Muse agent at heart of AI strategy, plans new stock to power investments

Meta announced the introduction of non-voting shares on October 21st to fund its costly AI expansion efforts. The company's executives emphasized that their future strategy should revolve around its nascent AI agent business, Muse. Shares of Meta rose by more than 4% in extended trading following the announcement. Meta also projected fourth-quarter revenue higher than Wall Street estimates.

The company's investment in advanced chips and data centers aimed to strengthen its position in the competitive AI market against leaders like OpenAI and Anthropic. To support its AI ambitions, Meta plans to issue a new class of non-voting Class C common stock in January 2027, effectively resulting in a two-for-one stock split. CEO Mark Zuckerberg highlighted that over 10 million users in the US and Canada had created Muse accounts within a month and a half, with growth remaining strong.

Zuckerberg envisioned Muse serving billions of people, generating more revenue than the average Meta user, and creating a network effect similar to that of Meta's social media empire. However, Zuckerberg acknowledged that the costs of developing Muse were higher than those of many of Meta's previous new products, indicating a shift in their monetization strategy.

Meta CFO Susan Li predicted that Meta's AI businesses would start generating incremental revenue in 2027 and become a significant source of revenue diversification over time. The executives reiterated that AI would be the primary focus for Meta's loss-making Reality Labs unit, which previously drove the company's vision for the "metaverse."

The company raised its annual spending forecast for capital expenditures to between $135 billion and $145 billion for the year, up from the previously expected range of $130 billion to $145 billion. Meta reported a free cash flow deficit of $2.12 billion in the third quarter, compared to a positive free cash flow of $10.63 billion a year earlier.

Despite the higher costs, Meta's recent success with Muse and the launch of competitive AI models have helped justify its spending to investors. Legal challenges, including a $25 billion penalty imposed by a New Mexico judge for misleading residents about data sharing practices, continue to loom over Meta. These legal issues are expected to persist into the next year, adding to the company's ongoing financial concerns.