Meta Stock Plummets as Investors Weigh AI Spending Against Returns

Meta's stock plummeted 9.4% on Thursday, extending a record losing streak to 11 consecutive days. The downturn followed a disappointing earnings report and concerns over the company's substantial artificial intelligence investments. In contrast, Microsoft and several chipmaker stocks experienced significant gains, buoyed by their own positive earnings and AI-related developments.

Meta, the parent company of Facebook, Instagram, and WhatsApp, reported a 91% year-over-year drop in free cash flow to $784 million. The company plans to invest up to $145 billion this year in memory chips and data centers to support its AI ambitions. However, during Meta's earnings call, CEO Mark Zuckerberg did not provide a clear timeline for when these significant capital expenditures would begin generating returns.

Ben Barringer, head of technology research at Quilter Cheviot, noted in a statement that Zuckerberg's current narrative lacks detail, relying on future possibilities. Barringer added that while Meta plays a crucial role in the AI landscape, its strategy appears somewhat unfocused, leading to volatile costs and revenues.

In the second quarter, Meta reported earnings per share of $6.18 on revenue of $60.8 billion, falling short of Wall Street expectations of $7.14 per share on $60.2 billion in revenue. For the current quarter, Meta forecasts revenue between $61 billion and $64 billion, with a midpoint of $62.5 billion, also missing analysts' estimates of $63.15 billion.

Earlier this month, reports suggesting Meta might sell excess computing power had briefly boosted its stock, with traders hoping it could recoup some of its AI-related investments. Zuckerberg stated that Meta is receiving "significant premium" offers for its compute power but did not offer specifics on potential sales, reiterating that the company needs to retain compute for its own AI initiatives.

The broader tech and chip stock market has seen volatility recently, fueled by fears of an "AI bubble" and competition from Chinese technology firms. However, Microsoft's stock surged 17% after reporting 43% growth in its Azure cloud business and exceeding revenue expectations. The company also announced it has surpassed 30 million paid seats for Microsoft 365 Copilot, its AI work assistant, up from 20 million in April, indicating progress on its $190 billion AI investment.

Other AI-related stocks also saw increases. Shares of chipmakers AMD, Broadcom, and Nvidia rose 13.3%, 4.2%, and 2%, respectively. These gains suggest that investors remain optimistic about other companies poised to benefit from the AI boom, despite concerns that have affected Meta's valuation.