Meta's AI spending tests Facebook's growth-first strategy

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A million dollars isn't cool. You know what's cool? Capital investment is $40 billion.

META CEO Mark Zuckerberg points to the early days of Facebook, when the social network migrated to mobile phones, saying that in order to make money, you first had to spend it. He reminded investors that this is not the case.

Zuckerberg was right to remind investors of the concept of investing. Because Wall Street, after getting a glimpse of the huge costs of AI investments, sent Meta stocks down the elevator shaft.

While News Feed, Reels and Stories solidify the company's growth-first, monetization-later strategy, investors still aren't fully on board with Zuckerberg's AI strategy.

Meta had a great quarter by a number of important metrics. But investors still balked at the ballooning costs and the admission that aggressive AI investments will take several more years to become a profitable line of business. Annual capital spending is expected to reach a peak of $37 billion to $40 billion.

The check on Zack's ambitions became clear when Meta's forecast for the second quarter was bearish. Given that Meta is currently a dividend-paying company, investors will be less patient with Meta's AI spending if earnings growth isn't accelerating.

The harsh reaction to Meta's earnings was a mirror image of Tesla Inc.'s (TSLA) post-earnings rally. As Elon Musk's marketing alchemy showed earlier this week, visionary storytelling and a generous sprinkling of market appeasement can mean more than the numbers suggest. Investors ignored Tesla's weak financials and bought into Musk's latest fantasy, but they ignored Meta's strong performance and turned a deaf ear.

“I think it's worth pointing out that historically at this stage of our product strategy, we're investing in new product expansions that we haven't yet monetized, so we're seeing stock price volatility,” Zuckerberg said. has been seen in a big way,” he said. On the phone to report financial results. He said Meta's AI effort is a multi-year effort, a nod to past vicissitudes in the company's history.

But even Zuckerberg acknowledged that developing Meta's AI will be a bigger undertaking than the Reels and Stories monetization that started as a copycat feature and has fed into existing social media empires.

Zuckerberg's efforts to tout the tangible benefits of AI, especially the lofty goals of a supposedly transformative technology, may also make it seem like a small thing.

“Building a large business here means people can pay to expand business messaging, introduce advertising and paid content into AI interactions, use bigger AI models and access to more computing.” There are several ways to do this,” Zuckerberg emphasized.

The AI curation system powers Meta's engagement loop by increasing time spent on the platform and serving more ads. In a first for Meta, more than half of the content people see on Instagram is AI-recommended content.

It may not be worth $40 billion. But it is something.

Hamza Shaban is a reporter for Yahoo Finance, covering markets and economics. Follow Hamza on Twitter @hshaban.