Shares of Meta Platforms (META) experienced a significant downturn, plunging 13% on Thursday, triggering a broader selloff in major technology stocks. This downturn followed indications from the social media giant that its substantial investment in artificial intelligence (AI) may take an extended period to yield returns.
Implications for Tech Giants
The decline in Meta’s stock value was poised to wipe out nearly $170 billion from its market capitalization. Additionally, the news led to decreases of 3% to 4.2% in the shares of AI-focused Microsoft (MSFT.O) and Alphabet (GOOGL), both of which were slated to report earnings after the market’s close.
Mixed Reactions in the Market
Despite the negative impact on Meta’s shares, the focus on AI spending resulted in a more than 2% surge in the stocks of Nvidia (NVDA), Broadcom (AVGO), and Marvel Technology (MRVL). Analysts have identified these companies as beneficiaries of the burgeoning generative AI trend.
Investor Concerns and Meta’s Response
Meta CEO Mark Zuckerberg’s announcement during the post-earnings call about the significant increase in costs over the coming years raised concerns among investors. Zuckerberg emphasized that the company anticipates minimal revenue from its AI products for some time. This move fueled fears that Meta was embarking on another costly venture, especially as its augmented and virtual reality segment continued to report substantial losses.
Analyst Insights
While some analysts expressed apprehension about Meta’s increased expenditure, others maintained a positive outlook, citing potential benefits from AI-driven engagement initiatives such as Instagram Reels and the positive reception of Meta’s virtual assistant and language model. Nevertheless, the company’s revised forecasts and lower revenue expectations prompted 19 analysts to lower their price targets on the stock, while 13 raised theirs.
Looking Ahead
Meta’s stock currently boasts a 12-month forward price-to-earnings ratio of approximately 23.12, compared to Microsoft’s 31.17 and Alphabet’s 22.07. Despite the recent setback, Meta’s shares have surged by nearly 40% year-to-date, outpacing the S&P 500 index’s modest 6% gain.
As Meta embarks on an extensive investment cycle, investors are grappling with uncertainties regarding the duration and effectiveness of this strategy. While some remain optimistic about the company’s prospects in the evolving digital landscape, others are cautious about the potential risks and challenges associated with its AI-focused initiatives. Ultimately, Meta’s ability to navigate these challenges and deliver tangible results from its investments will shape its trajectory in the coming years.