Meta Shares Drop 7% as Tech Giants Report Mixed Results on AI Spending

Shares in the company, which owns Facebook and Instagram, dropped 7% in extended trading, after saying it would spend billions more on AI projects than it had initially planned. Meta, Google-owner Alphabet, Microsoft, and Amazon all reported their quarterly earnings at the same time. But the latter three companies fared better with investors as they showed how their own huge AI investments were starting to pay off. Tech investors have become increasingly wary about the more than $650bn (£481bn) the four firms are spending this year alone on AI. Lee Sustar, an analyst at Forrester, said there is still anxiety "about the sustainability of the AI boom" given the high cost and so far unrealised gains. Yet, tech companies are pushing forward with plans, for this year and next, to pour billions into its development. "With the potential payoff of AI leadership seemingly so high, the companies continue to make those bets, forcing investors and customers alike to assess how their interests are impacted," Sustar added. Meta's share price slumped after it said it needed to spend even more money to get the results it is wanting from AI. The firm said its planned capital expenditure, the metric companies use to detail their spending on projects that have not yet turned into business growth, will increase to as much as $145bn, up from a previous maximum of $135bn. Susan Li, Meta's chief financial officer, said Meta has in past years "underestimated our compute needs" and that it needed to spend more money in order to meet them. Asked how this spending would lead to results, Meta's chief executive Mark Zuckerberg said: "I don't think we have a very precise plan for exactly how each product is going to scale or anything like that." "But I think we have a sense of the shape of where these things should be... and I'm quite comfortable that the lab we're building is on track to be a leading lab in the world," he added, referring to Meta's Superintelligence Lab. "We are seeing more and more examples where one or two people are building something in a week that would have previously taken dozens of people months... We're building the next evolution of our company around these people," Zuckerberg said. Asked about the possibility of more layoffs, Li said: "We don't really know what the optimal size of the company will be in the future." In an investor call on Wednesday, executives said there were plans to "significantly increase" spending on AI next year and the stock still rose. The company did not say exactly how much it will spend next year, but this year it plans to spend $185bn, more than double what it spent in 2025. "We own frontier models, we own the silicon [for chips], that really helps us stay head of the curve," he said. The company said its profits rose by 30% and noted that its Google Cloud business grew by 63%, an increase it attributed specifically to an increase in AI usage by companies that buy cloud services. "Looking ahead, our ability to invest in this moment and stay at the frontier puts us in a strong position, and were doing it based on tangible demands," Pichai added. Microsoft's stock fell by nearly 2% after the company reported its quarterly results, but it ticked back up in the hours after. The company beat its revenue expectations with an increase of 16% to $83bn, and profits rose 23% to $38bn, although its spending on AI has hit its free cash flow. That metric, essentially how much money a company has in its bank account, is important for investors. Such a metric, however, is a projection of future sales based on a multiple of current sales. The company did not specify the base level sales figure the run-rate was calculated on. Amy Hood, Microsoft's chief financial officer, appeared to quell investor concern on spending by explaining the company's AI business was proving to be a smoother development than when the company began shifting to cloud services in the early 2010s. "The margins have been and remain better in our AI business than when we were in our cloud transition," Hood said. The company's stock is down nearly 11% so far this year, as questions around its spending on AI and its partnership with OpenAI, in which it has invested more than $10bn, have continued. Amazon's shares also fell after it revealed it would likely make less money next quarter than initially thought, but the results themselves were in line with analyst expectations and the company's stock was up 2.7% in extended trading. The company notched a 15% year-over-year increase in profits, and its increasingly important cloud business grew 28%, the biggest jump it has seen in more than four years. "I expect that we will invest a significant amount of capital over the coming years to pursue that opportunity," he added. "And that our customers, our shareholders and Amazon in general are going to be much better off down the road because we did so."