Meta's AI Ambitions Face Wall Street Skepticism Amid Cost Surge

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

Meta (META) CEO Mark Zuckerberg invoked an earlier Facebook era, when the social network transitioned to mobile phones, to remind investors that you must first spend money to make money.

While the News Feed, Reels, and Stories solidified the company's grow first, monetize later playbook, investors are still not fully on board with Zuckerberg's AI gambit.

By many important measures, Meta delivered a stellar quarter. But investors still recoiled at ballooning expenses and an admission that the company needs several more years before aggressive AI investments become profitable business lines.

Capital expenditures are now expected to rise as high as $40 billion for the year, up from a high of $37 billion.

The check on Zuck's ambitions came as Meta shared a downbeat Q2 forecast.

Investors have less patience for Meta's AI outlays when revenue growth isn't accelerating, especially given that it's a dividend-paying company now.

The rough reception to Meta's earnings provided a mirror image of Tesla's (TSLA) post-report surge.

Investors brushed aside Meta's solid performance and stopped listening.

"I think it's worth calling that out, that we've historically seen a lot of volatility in our stock during this phase of our product playbook where we're investing in scaling a new product but aren't yet monetizing it," Zuckerberg said on the earnings call.

He nodded to past transitions in the company's history, describing Meta's AI efforts as a multiyear work in progress.

But even Zuckerberg acknowledged that Meta's AI development will be a larger undertaking than monetizing Reels and Stories, which began as copycat features, and fed off an existing social media empire.

Zuckerberg's attempt to sell the concrete benefits of AI may make them seem small.

"There are several ways to build a massive business here, including scaling business messaging, introducing ads or paid content into AI interactions and enabling people to pay to use bigger AI models and access more compute," Zuckerberg touted.

AI curation systems are strengthening the engagement loop of more time on Meta's platforms and the delivery of more ads.

In a first for Meta, more than half of the content people see on Instagram is AI recommended.

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