Shares of Meta Platforms Inc (NASDAQ:META) took a significant hit, dropping 14.5% in overnight trading, as the company’s ambitious AI initiatives failed to inspire confidence among investors.

This decline highlights the skepticism that arises when companies tout AI plans, particularly when there’s a history of overpromising and underdelivering.

While Meta’s first-quarter financials showed strength, with some weaker guidance for the upcoming months, the primary driver behind the share price decline was a 10% increase in planned capital expenditure. Meta now plans to spend between US$35 billion to US$40 billion, a move that unsettled investors.

Analysts noted that while the increase in spending may have spooked investors, Mark Zuckerberg’s explanation of the hike exacerbated concerns. He indicated that the AI investment cycle typically spans two years before any potential monetization can occur—a timeline that many investors may find too lengthy.

The call for patience in realizing returns from AI investments mirrors similar sentiments seen with Tesla’s ambitions for autonomous vehicles. However, Tesla managed to offer a short-term solution by introducing a lower-cost vehicle to compete with the growing market of inexpensive Chinese EVs.

Analysts observed that Meta’s earnings call focused predominantly on AI, which failed to appease investors. The lack of discussion on other key topics, such as the potential impact of a US ban on TikTok and the progress of its Ray-Ban smart sunglasses, added to investor concerns.

The recurring theme of skepticism toward Meta’s AI plans stems from CEO Mark Zuckerberg’s track record. Previous concerns about his spending habits and the company’s ability to generate revenue have resurfaced.

Despite AI being viewed as a more tangible initiative compared to Meta’s ventures into the metaverse, investors remain cautious. Reality Labs, Meta’s division responsible for the metaverse, continues to incur significant losses, with little improvement year-on-year.

Overall, investors are hesitant to fully trust Meta’s AI endeavors, especially given past disappointments. The lack of confidence in Zuckerberg’s leadership further complicates the company’s efforts to reassure investors of its long-term viability.

Featured Image: Unsplash

Please See Disclaimer