Meta is on an AI spending spree. It's only going to get bigger

Meta founder and CEO Mark Zuckerberg. - Photo: Josh Edelson (Getty Images)
Meta founder and CEO Mark Zuckerberg. - Photo: Josh Edelson (Getty Images)

Facebook parent Meta Platforms (META) has invested billions of dollars into artificial intelligence as it looks to keep pace with its Magnificent 7 competitors. The tech giant warned that this spending will only grow into next year and beyond.

In its third-quarter earnings report Wednesday, Meta raised capital expenditure estimates for the 2024 fiscal year to between $38 billion and $40 billion, from $37 billion to $40 billion previously. The company said it expects “significant capital expenditures growth in 2025” and “significant acceleration in infrastructure expense growth next year.”

Chief executive Mark Zuckerberg gave analysts a hint of what some of those investments could look like on a call Wednesday, but said the company would offer more details once it finalizes its budget in the fourth quarter.

“First, it’s clear that there are a lot of new opportunities to use new AI advances to accelerate our core business that should have strong ROI over the next few years,” Zuckerberg said. “So, I think we should invest more there.”

“And second, our AI investments continue to require serious infrastructure, and I expect to continue investing significantly there too,” he added.

Meta stock was down about 1.8% shortly after the market opened Thursday.

Read more: 3 years after turning Facebook into Meta, Mark Zuckerberg’s real win is AI

Strategists at Jefferies (JEF) are estimating next year’s expenses to total $110 billion — up 14% from an estimated $97 billion this year, according to a Thursday note. They also project capital expenditures of $52 billion, an annual increase of 33%.

“Investors have a tolerance for AI spend as long as they can understand the vision, the impacts and see active progress,” said Christophe Ponsart, partner in the applied AI practice at consulting firm Qvest.US. “Meta is keeping the public actively aware of ongoing progress with these investments and releasing models iteratively and often — that’s a good thing for investors.”

The Menlo Park, California-based company took efforts Wednesday to demonstrate how its existing investments in AI are showing signs of payoff. Meta shared that more than one million advertisers used generative AI tools to create more than 15 million ads last month.

Meta AI, the company’s AI chatbot embedded into its popular social media platforms like Instagram and Facebook, has more than 500 million monthly users. Zuckerberg had previously said it was on track to become the most used AI assistant in the world by the end of this year. And AI-driven feed and video recommendations have driven an 8% increase in time spent on Facebook and a 6% increase on Instagram this year.

Wedbush analysts led by Scott Devitt said they believe “increased investment is justified given the benefits AI is already bringing to the business and the considerable optionality for future growth” across its applications and at Reality Labs, the unit responsible for Meta’s virtual and augmented reality projects.

For the three months ended Sept. 30, Reality Labs suffered an operating loss of $4.43 billion. Meta said it expects operating losses to “increase meaningfully year-over-year.”

Bank of America (BAC) researchers said in a note Thursday that “Meta’s growing AI focus could drive positive product surprises in coming quarters,” including AI customer service offerings, and Meta AI ads or subscriptions, which could give investors added optimism.

Overall, Wedbush said Meta’s third-quarter results were “healthy” and showed the increasing momentum of AI. Meta reported $15.69 billion in net income for the quarter, or $6.03 per share, up from $11.58 billion in the same quarter last year — beating Wall Street estimates.

Revenue came in at $40.59 billion, up 19% from $34.15 billion a year ago and surpassing Wall Street’s estimated $40.19 billion for the quarter.

Meta has had a strong year, with the stock up about 68% so far in 2024.

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