The total amount that investors wrote Mark Zuckerberg appears to be approximately $40 billion.
That represents the new maximum amount that Meta Platforms is expected to spend this year on capital projects. The CEO cited the need to increase investments in generative artificial intelligence as the reason why the parent company of Facebook and Instagram increased its capex range for the year by 12% in its first-quarter report, which was released late on Wednesday. This year, Microsoft and Alphabet, the parent company of Google, are expected to spend almost the same amount as the company, which is a significant amount that is almost twice as much as the company has averaged over the previous five years.
Three months ago, Meta made bold spending projections that investors welcomed because the rest of the company was operating extraordinarily well. The company’s stock saw a significant increase as a result of the most recent findings; Meta has gained 39% so far this year, which is the sixth-best return on the S&P 500.
However, the most recent report was less spectacular, with first-quarter revenue of $36.46 billion barely above Wall Street’s estimate and forecasted revenue for the second quarter falling short of analysts’ estimates. The revenue growth of 27% in the just concluded period was significantly slower than the second-quarter prediction, which called for growth of 18% year over year at the midpoint. In Wednesday’s after-hours trading, Meta’s stock fell by over 16%.
The world’s largest social network will not have any difficulty paying its payments. Advertising revenue increased by about 27% year on year to $35.6 billion in the first quarter, with operating margins for the key advertising sector known as Family of Apps reaching 49%—nearly 10 points higher than the same period last year. The business of displaying adverts to a global audience of 3.24 billion people who check in every day is lucrative. Despite dramatically increased capital spending, Meta’s free cash flow reached $12.5 billion in the most recent quarter, rising 81% year on year.
But despite the fact that the financial contribution from generative AI is either uncertain or far off, major titans like Meta, Microsoft, Google, and Amazon are now investing billions in this field. “I expect to see a multiyear investment cycle before we’ve fully scaled Meta AI, business AIs, and more into the profitable services I expect as well,” Zuckerberg said to analysts on Wednesday’s conference call, demonstrating at least some candor on the final point. “As we invest aggressively to support our ambitious AI research and product-development efforts,” Chief Financial Officer Susan Li continued, capex is anticipated to be much higher the following year.
For Nvidia, the primary provider of the chips and computer systems required to enable generative-AI capabilities in data centers, this is excellent news. However, it also suggests that before they see the advantages, IT investors in general may need to adjust to higher out-of-pocket expenses. On Thursday, Microsoft and Alphabet, the parent company of Google, will release their own March quarter numbers, which may convey a similar message. Following Meta’s disclosure on Wednesday after hours, shares of each company fell between 2% and 3%.
With no end in sight, the race toward AI is becoming progressively more costly.
