A selloff in major technology companies was ignited by a 13% drop in Meta Platforms (META) shares on Thursday, following the social media giant’s indication that its costly AI investments would take years to yield returns.
This decline is expected to erase approximately $170 billion from Meta’s market capitalization and lead to a 3% to 4.2% decrease in shares of AI-focused firms, including Microsoft (MSFT), Alphabet (GOOGL), and Snap (SNAP).
During a post-earnings call, CEO Mark Zuckerberg, who had previously surprised investors with aggressive cost-cutting measures, revealed that expenses would increase “meaningfully” over the next several years before the company sees substantial revenue from its AI initiatives. This announcement heightened investor concerns about Meta’s commitment to yet another expensive project, especially as its augmented and virtual reality division faces billion-dollar quarterly losses.
“Investors were caught off guard by the higher capital expenditures, compounded by a somewhat lowered revenue estimate for the second quarter. As a result, shares are now in the ‘penalty box,'” noted analysts at Baird Equity Research.
On Wednesday, Meta raised the lower end of its 2024 total expense forecast by $2 billion while projecting revenue for April through June below expectations. In a bid to catch up with AI leaders Microsoft and OpenAI, Meta has also increased its capital expenditure outlook to invest in data centers.
These grim forecasts follow a series of exceptional results that nearly tripled Meta’s shares in 2024, contributing to the largest single-day market value increase of $196 billion for any company on Wall Street in February after the announcement of its first dividend.
