Mark Zuckerberg's AI obsession: Is $8 billion too much for Meta to handle?
Mark Zuckerberg's big bet on AI appears to be paying off, at least for now: Meta shares saw a big surge late last month, and the company's second-quarter results eased some Wall Street concerns about excessive spending on AI.
To recap, Meta reported that second-quarter capital expenditures (Capex) increased 33% to $8.17 billion. And they're not stopping there: The company raised the low end of its 2024 Capex forecast to $37 billion, while the high end remains at $40 billion. That's a lot of money, but Zuckerberg is betting on AI.
Don't Miss:
Meta isn't alone in this spending spree. Other big tech companies, including Alphabet and Microsoft, are also pouring money into AI infrastructure. Alphabet's capital expenditures rose 91% in the quarter, while Microsoft's was up 55%. But what's interesting is how Wall Street has responded differently to each company's spending plans.
Take Alphabet, for example. The company's stock price took a hit despite big AI investments. Investors were spooked by YouTube ad revenues that came in slightly below expectations. CEO Sundar Pichai made it clear that underinvestment is riskier than overinvestment, but that didn't calm the market. The result? The tech sector suffered its most painful selloff in more than a year.
Trending: Revolutionary trading app with 'buy now, pay later' stock feature taps into $644 billion margin lending market – How to get shares for just $100
Microsoft experienced a rollercoaster ride. Its cloud division missed revenue forecasts by just 1% and grew 29% instead of 30%. And full-year capital expenditures rose 60% year over year to $69 billion. The stock initially plummeted, but then CFO Amy Hood stepped in. She explained that cloud revenue had been hit by economic problems in Europe and “capacity constraints,” meaning there wasn't enough infrastructure to meet AI demand. The relief allowed the stock to recover most of its losses.
So why has Meta been able to please investors while others have failed? CFRA analyst Angelo Gino thinks it comes down to clarity. Zuckerberg kicked off Meta's earnings call by laying out a specific AI strategy. He talked about an AI Studio that lets users create their own AI, and business AI that can eventually handle customer service and sales.
The story continues
Trending: General Motors and other leaders revealed to be investing in this innovative lithium startup. With launch prices of just $9.50 per share and a $1,000 minimum, it's easy to get in.
Zuckerberg's message was simple: Meta's AI is already driving engagement across its platforms by improving content recommendations. But it's not just talk: Meta's revenue grew 20% in the second quarter, driven by higher ad impressions and prices.
Gino said Meta's AI story is easier for investors to understand than the more complicated stories of companies like Alphabet, and Meta's strong growth rate has helped the company outperform its competitors in the digital advertising market.
For now, Zuckerberg's AI obsession appears to be working, but time will tell if this big bet will continue to pay off in an ever-changing tech industry.
Read next:
Up your stock market game with Benzinga Pro, the #1 “News and Everything Else” trading tool in the “Active Investor's Secret Weapon” – Start your 14-day trial now by clicking here.
Want the latest stock analysis from Benzinga?
This article, “Mark Zuckerberg's AI Obsession: Is $8 Billion Too Much for Meta?” originally appeared on Benzinga.com.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
