Meta's Chief Executive Officer Mark Zuckerberg defended the company's aggressive artificial intelligence spending, telling investors, "I get that this is a big investment and it's a big bet," after the Facebook parent issued a weaker-than-expected revenue forecast that renewed concerns over whether its multibillion-dollar AI push will deliver returns quickly enough.
"We see the technology working. We're happy with the trajectory of the lab. I'm excited about the products that are coming. And we believe that this is going to be a big thing," Zuckerberg said during the company's earnings call on Wednesday.
The reassurance came after Meta forecast third-quarter revenue of $61 billion to $64 billion, with the midpoint falling below analysts' expectations. The company also reported its lowest free cash flow in years, highlighting the mounting cost of its AI investments, including data centres and smart glasses.
The social media giant is expected to spend as much as $145 billion this year on AI infrastructure as it races against rivals such as Alphabet, OpenAI and Anthropic to develop advanced AI models and products.
Meta depends largely on advertising revenue from Facebook and Instagram to fund these investments. However, investors have grown increasingly concerned about whether the company can generate enough revenue and profit to justify its soaring AI expenditure. Earlier this year, shareholders reacted negatively after Meta increased its AI spending plans, while many remain wary of the company's costly metaverse investments, which have yet to generate significant returns.
The company projected third-quarter revenue of $61 billion to $64 billion, compared with analysts' average estimate of $63.2 billion, according to Bloomberg data. Following the announcement, Meta shares fell more than 10% to $524.49 at the New York market open, taking the stock's decline this year to 11%.
Meta recently announced a $14 billion partnership with BlackRock to build a data centre complex in El Paso, Texas, and is also constructing another large AI data centre in rural Louisiana. The company has positioned itself among the technology industry's biggest spenders on AI infrastructure.
Despite the heavy investment, Meta continues to face scepticism because it does not operate a cloud computing business like some rivals and its AI offerings have at times been viewed as less competitive. In recent months, the company has launched new AI-related services, including a paid AI chatbot subscription and a paid AI model for developers, though both remain in their early stages.
During the earnings call, Zuckerberg also hinted at a potential new business by suggesting Meta could eventually sell computing power to other companies.
He said the company has received a "large number of offers" from businesses willing to buy its computing capacity at a "meaningful premium" over what Meta paid for it.
"There is just nowhere near enough compute for all of the demand," he said, adding that Meta is weighing whether to sell excess computing capacity or continue using it to support its own AI products while also purchasing computing power from independent data centre operators.
Meta raised the lower end of its full-year capital expenditure forecast to $130 billion-$145 billion, from the previous $125 billion-$145 billion range. Its free cash flow dropped to $784 million in the second quarter, the lowest since the third quarter of 2022, according to Bloomberg.
For the quarter ended 30 June, Meta reported revenue of $60.8 billion, slightly ahead of analysts' estimate of $60.3 billion, driven primarily by advertising across its flagship platforms.
Zuckerberg ended the call by expressing confidence that the company's AI strategy would eventually deliver long-term value for shareholders.
"My personal bet is that the people who invest in this are going to be rewarded and feel very good over time," he said.
Legal Fees
Meta is facing other costs on top of its hefty AI investments. The company narrowed its full-year expense outlook Wednesday to $165 billion to $169 billion, a jump meant to incorporate $2.4 billion in penalties related to legal proceedings, according to a company filing.
Thousands of individuals and US school districts are suing Meta and other major social media companies over allegations that their products are addictive and harmful to minors. Earlier this year, a jury found Meta and Google liable for a young woman's mental health struggles, awarding her a total of $6 million in damages in what was considered a litmus test for thousands of similar, pending complaints.
In March, Meta lost a separate case in New Mexico alleging the company failed to protect children from online predators; jurors assessed a penalty of $375 million, which the company continues to fight.
(With inputs from Bloomberg)