Meta sparks tech sell-offs as AI splurge spooks Wall Street By Reuters

By Aditya Soni and Kanchana Chakravarty

(Reuters) – Shares of Meta Platforms (NASDAQ ) sank 13% on Thursday, sparking a sell-off in big tech stocks after the social media company signaled its expensive bet on ai could take years to pay off. fruits.

The drop was set to erase nearly $170 billion from the company's market value and led to a 3% to 4.2% drop in shares of Microsoft (NASDAQ ) and Alphabet (NASDAQ , focused on artificial intelligence, which report profits after the market closes.

However, the focus on ai spending led to a more than 2% rise in shares of Nvidia (NASDAQ ), Broadcom (NASDAQ and Marvel technology, which analysts have called the shovels and pickaxes of the generative ai boom .Intel (NASDAQ ), which missed the ai-led rally, rose 0.7% ahead of its earnings.

Meta CEO Mark Zuckerberg, who took down Wall Street last year with his cost-cutting drive, said in a post-earnings conference call that costs would grow “significantly” in the coming years before the company earn “a lot of revenue” from some of its ai products. .

That stoked investor fears that Zuckerberg was sinking Meta into another costly endeavor at a time when its virtual and augmented reality business was losing billions of dollars each quarter.

“Investors were caught off guard by higher capital spending, exacerbated by slightly weaker revenue guidance for the second quarter. As such, the stock is entering the 'penalty box,'” analysts at Baird Equity said. Research.

Meta forecast April-June revenue below estimates and on Wednesday raised the lower end of its 2024 total spending forecast by $2 billion. It also raised the top end of its capital spending vision as it invests in data centers essential to its efforts to catch up with leaders in ai, OpenAI and Microsoft.

The stark expectations follow a string of stunning earnings that helped Meta nearly triple its stock in 2023 and fueled the biggest one-day market value gain of any company in Wall Street history, at $196 billion. in February after its inaugural dividend.

Still, several analysts were positive about the investments, pointing to ai-driven engagement in content like instagram Reels and the warm reception of its virtual assistant Meta ai and early versions of its latest big language model, Llama 3.

“We think this time is different,” Evercore ISI analysts said. “This investment cycle comes from a position of strength, as management continues to see a healthy advertising demand environment in the second quarter and improving user engagement.”

In total, 19 analysts lowered their price targets for the stock, while 13 raised their opinion, according to LSEG data. The average price target now stands at $525, approximately 6% higher than its previous close.

The stock has a 12-month trailing price-to-earnings ratio of around 23.12, compared to Microsoft's 31.17 and Alphabet's 22.07. It has gained almost 40% so far this year, comfortably ahead of the benchmark index's 6% gain.

“Being on the offensive with investment spending is generally great, but on the Internet it's very difficult to say which of those investments will pay off and when,” said Bernstein analyst Mark Shmulik.

“All of this culminates in investors wondering how long this investment cycle will last, whether the opportunity and profitability are real, all against a backdrop of slowing growth.”