Meta's Muse Is a Breakout Success. But There's 1 Glaring Problem With It.

Meta Platforms' (META -0.22%) new AI-powered personal agent app, Muse, has quickly gained popularity, boasting over 10 million users just a few weeks after launch, with 25% of those users engaging with it daily. However, the primary issue with Muse lies not in its functionality, but in its high cost and lack of profitability. The financial strain on Meta is significant, as the company is reportedly spending nearly $145 billion this year on AI-related capital expenditures.

This investment dwarfs those of its peers, such as Microsoft, which is allocating up to $190 billion for AI infrastructure this year. A key distinction between Meta and other AI companies is that Meta's primary revenue stream is advertising, generated through its social media apps designed to keep users engaged and generate in-app display ads.

As AI agents perform tasks and answer questions, inserting ads into these interactions becomes more challenging and less lucrative than on platforms like Facebook or Instagram. Moreover, running AI models can be expensive, with Meta incurring costs of approximately $40 per user per month for its free Muse tier, which allows 100 million AI tokens per month.

Higher-tier plans may incur even greater costs for Meta. Despite plans to charge businesses for transactions made through Muse in the future, the current model still costs Meta money while not generating sufficient ad revenue. The agentic AI market is expected to become increasingly competitive with the entry of rivals like OpenAI's dots and Anthropic's Duet.

This increased competition and the ongoing financial strain on Meta make Muse's business model a significant problem for the company and its shareholders.