Meta shares declined by 11% on Wednesday as market confidence wavered over the company's aggressive investment in artificial intelligence. While the parent company of Facebook and Instagram reported a 28% increase in revenue to $61bn for the April-to-June quarter, profits dropped 14% to $6bn.
The company adjusted its annual spending forecast to a range of $130bn to $145bn, an increase from the $125bn projection issued just three months prior. Much of this capital is directed toward AI infrastructure. Consequently, Meta’s free cash flow fell to $784m, marking its lowest level in at least five years.
CEO Mark Zuckerberg defended the expenditure, stating that AI is enhancing core business operations and engagement across its platforms. He outlined plans to monetize these advancements by selling AI models and tools to other businesses, noting that the company is developing autonomous AI agents intended for future product lines. "My personal bet is that the people who invest in this will feel very good and be rewarded over time," Zuckerberg said during an analyst call.
Market analysts expressed caution regarding the strategy. Forrester analyst Mike Proulx noted that Meta’s cash generation is being heavily absorbed by infrastructure costs, drawing comparisons to the company’s previous, costly investments in the metaverse. "Investors now have to decide whether Meta's growing list of AI initiatives represents company diversification or distraction," Proulx stated.
In contrast, Microsoft saw its shares rise 5% in after-hours trading following its own quarterly report. The company posted $90bn in sales and $36bn in profits, demonstrating that investors remain receptive to high AI spending when it is accompanied by clear financial growth. Microsoft CFO Amy Hood indicated that the company expects to spend $175bn on capital projects in the coming year, primarily focused on AI infrastructure.
Source: BBC News
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