Meta's AI strategy is, once again, worrying investors.
The social media giant's stock tumbled 10% on Wednesday after it disclosed that its capital expenditure growth far outpaced revenue growth.
Meta has a core problem: much of this spending doesn't yet have a financial return. About 98% of Meta's revenue still comes from its traditional ads business, according to its second-quarter results.
Meta has been trying lots of new things lately, like rolling out new subscriptions, smart glasses, and apps. It's also weighing selling AI compute to other companies. All these moves leave its actual AI strategy unclear, EMARKETER senior analyst Minda Smiley said.
"These continuous rollouts increasingly feel more like the company is throwing spaghetti at the wall instead of rallying around a sustainable way forward," she wrote in a note.
A Meta spokesperson told Business Insider that Meta's AI investments supercharge its business by helping teams build faster and customers advertise better. For example, 9 million small businesses use Meta's AI image-editing tools. Also, since adding its latest AI model, Muse Spark, the company has seen a 60% increase in the number of people interacting with its AI assistant each day, the spokesperson added.
On the earnings call, CEO Mark Zuckerberg also made the case that it's still early in Meta's AI journey. He said that Meta is working on significantly more powerful AI models that will drive future revenue growth, and touted Meta's most recent AI model releases, which performed well on industry rankings.
Zuckerberg predicted a future where billions of people use personal AI agents operating 24/7 to improve their personal lives and careers, although he said that Meta hasn't quite made that a reality yet.
Wall Street's patience is wearing thin. Thomas Monteiro, a senior analyst at Investing.com, said in a note that Meta's ads revenue — which is still growing at a healthy clip — won't make up for all the AI spending.
"The harder truth is that even strong ads are not enough considering the expenses outlook," he wrote.
It's still far too early to count Meta out. On the earnings call, Zuckerberg stressed that he didn't view Meta as just an ads business. He cited Meta's long history of building its own technology, from creating Facebook in his Harvard dorm room to building data centers now.
"We really are a full-stack technology company," he said.
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