Meta stock falls 7% as AI spending fears return

Meta Platforms Inc. (META) experienced a 7% decline in its stock price at the close of trading on Thursday, despite having reported third-quarter revenue that exceeded expectations the previous day. This drop was largely attributed to renewed concerns regarding the sustainability of investments in artificial intelligence, which have caused unease among investors on Wall Street.

Market participants reacted by selling off shares in semiconductor companies and other firms heavily involved in AI, driven by uncertainties about the long-term profitability of substantial investments in AI data centers. In light of this environment, Meta adjusted its capital expenditure forecast, increasing the lower range to between $135 billion and $145 billion, up from the previous estimate of $130 billion to $145 billion. Additionally, the company has commitments totaling $825 billion related to cloud capacity, energy services, and consumer hardware.

Despite the market's negative response to Meta's earnings, many analysts maintain a positive outlook for the company, particularly due to the potential of its Muse AI agent and related models. During the earnings call, CEO Mark Zuckerberg emphasized Muse’s role in driving future growth, stating, "Muse will be highly profitable over multiple years," contingent on continued improvements in computational efficiency within AI systems.

In the third quarter, Meta achieved a record revenue of $64 billion, surpassing analysts' expectations of $63.3 billion. The company's Generally Accepted Accounting Principles (GAAP) earnings per share were reported at $3.83, exceeding the forecast of $3.56. However, it is important to note that earnings would have reached $7.40 per share if not for legal expenses associated with a settlement regarding the company's handling of teen mental health issues.

Meta also revealed plans to issue new non-voting Class C shares to all holders of Class A stock, effectively implementing a 2-for-1 stock split. This decision aims to maintain Zuckerberg's voting power and residency in California, particularly in light of Proposition 40, which is set to be voted on in the upcoming election. If passed, Prop. 40 would impose a 5% tax on individuals with assets exceeding $1 billion.

In a related legal development, a judge in New Mexico ordered Meta to pay $25 billion as part of the state's case against the company concerning consumer harms.

For more information, you can contact Daniel Howley at dhowley@yahoofinance.com or follow him on Twitter at @DanielHowley.