Meta Platforms Shares Plunge 13% on AI Bet Uncertainty, Tech Stocks Follow Suit

Shares of Meta Platforms (META.O) tumbled by 13% on Thursday, igniting a broader selloff in major technology stocks, as the social media giant signaled that its significant investment in artificial intelligence (AI) might take years to yield substantial returns.

The steep decline in Meta's stock was poised to wipe out nearly $170 billion from the company's market value, sending shockwaves through the tech sector. Consequently, AI-focused companies such as Microsoft (MSFT.O) and Alphabet (GOOGL.O), as well as advertising-reliant Snap (SNAP.N), witnessed declines ranging from 3% to 4.2%.

Meta's CEO, Mark Zuckerberg, known for his past cost-cutting initiatives, cautioned investors during a post-earnings call that the company's expenses would increase "meaningfully" over the next few years, with significant revenue generation from its AI products expected to materialize only after a considerable period.

This announcement sparked concerns among investors that Meta was embarking on another costly venture, especially as its augmented and virtual reality business continues to incur substantial losses each quarter.

Analysts from Baird Equity Research noted that investors were caught off guard by higher capital expenditures, compounded by a slightly softer revenue guidance for the second quarter, leading Meta's shares into what they termed as the 'penalty box.'

Meta's forecast for April-June revenue fell below estimates, prompting the company to raise the bottom end of its 2024 total expense forecast by $2 billion. Additionally, Meta raised the upper end of its capital expenditure outlook as it invests heavily in data centers crucial to its AI ambitions, aimed at catching up with industry frontrunners like OpenAI and Microsoft.

Despite the subdued expectations, Meta's recent investments in AI-driven content engagement, such as Instagram Reels, and the positive reception for its virtual assistant Meta AI and the early iterations of its latest large language model, Llama 3, have garnered some analyst optimism.

However, the market's reaction underscores the uncertainty surrounding Meta's ambitious AI initiatives and their timeline for profitability. While Meta's track record of delivering strong earnings in the past has fueled significant stock gains, the current skepticism highlights the challenges ahead as the company navigates its AI-driven future.