Meta Platforms (META) stocks took a 10% hit on Thursday, following the company's announcement that it intends to ramp up investment in artificial intelligence (AI), which may increase its expenses. Despite this near-term hits, industry analysts have suggested this could strengthen Meta's position over a more extended period.
After revealing its first-quarter earnings, Meta beat analyst estimates. However, the weak outlook alongside an increase in the lower end of projected costs for the year caused the share prices to fall.
During the earnings call, Mark Zuckerberg, Meta's CEO, revealed AI's growing significance, pointing out that AI recommendation engines deliver 30% of the content users see on Facebook and 50% on Instagram. He added that such AI-based recommendations enhance engagement and ad performance.
Analysts at Third Bridge noticed that Meta's revenue and market share growth is being backed by its AI-enhanced Advantage+ platform, which comes with volume increases and pricing advantages. However, they also pointed out that a clear timeline, return expectations, and specific long-term implications of AI investment, still need clarification.
While acknowledging the scale and ambition of Meta's AI-driven mission, analysts from JPMorgan and Wedbush expressed their confidence in the company's record of success. They also pointed out that the aggressive spending on AI might pay off over a longer-term instead of bringing immediate benefits.
Bank of America analysts expressed that despite possibly seeing an end to its positive momentum cycle, Meta is investing wisely. Third Bridge echoed this sentiment, raising questions about the perpetuity of Meta's positive evolution.
Even though the increased AI investment has prompted jitteriness among investors, analysts suggest that Meta is on the correct path for long-term investment.
Anticipating the acceleration in expense growth resultant from AI investment, Wedbush analysts revised their estimates on Meta's spending. They expect Meta to emerge as a long-term leader in AI, requiring higher capex spending in upcoming years.
William Blair analysts acknowledged the scale and timeline of AI investment being larger and longer than Meta's previous platform investments. However, they added that it might only require some more time and evidence to convince investors of its prudential spending and eventual leadership role in the AI landscape.
Bank of America analysts recognized a reset in expectations, but reinforced the fact that the AI pioneer is building on its initial success by leveraging its platform offerings. Despite a 10.6% loss on Thursday, closing at $441.38, Meta shares have seen a nearly 25% gain since the beginning of 2024.