Don’t Sleep on Meta Platforms Stock. Why Its AI Bet Could Pay Off Big.


  • Meta Platforms (META) investors aren’t sure CEO Zuckerberg can be trusted with the purse strings for AI spending.
  • Despite a strong quarter, META stock fell because of plans of heavy AI investment.
  • The metaverse experience is new and investors are nervous, despite its potential for better resource allocation by META.
Meta Platforms stock - Don’t Sleep on Meta Platforms Stock. Why Its AI Bet Could Pay Off Big.

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The market essentially said it doesn’t trust Meta Platforms (NASDAQ:META) CEO Mark Zuckerberg to target artificial intelligence. Meta Platforms stock dropped 20% after announcing strong earnings and plans to invest in AI.

Still reeling from the $45 billion Zuckerberg lost on pursuing his metaverse folly, the market suggested it wasn’t ready to have him do the same thing in AI.

Meta Platforms Stock Is Back

Meta Platforms is back to making money. With the number of daily active people across its family of apps, including Facebook, Instagram, and Messenger, rising to 3.24 million, the company saw revenue shoot 27% higher.

Average revenue per person across its app family rose 18% to $11.20 from $9.71 last year while free cash flow doubled to more than $12 billion.

The critical mass of social media users Meta has compiled makes it the go-to destination once again for advertisers.

Meta generates virtually all of its revenue from ads, and the economic uncertainty last year had advertisers pulling ad dollars from the platforms.

It’s a different story today. Ad revenue soared to $35.6 billion from $28.1 billion a year ago, allowing net income to more than double year over year to almost $12.4 billion.

Importantly, the average price per ad rose 6% in the first quarter compared to a 16% decline in the year-ago period.

Advertisers are back and they are placing ads with Meta Platforms because they know they can reach the greatest potential audience with the social media site.

Lost in the Metaverse

Investors are another matter. Though no doubt appreciating the incredible improvement in Meta Platforms’ financial position, they’re not so sure Zuckerberg won’t keep squandering the windfall.

The metaverse hasn’t played out quite like Meta thought when it changed its corporate identity. It turns out people don’t want to live, work and play online all the time. It’s a fun diversion, but not a 24/7 endeavor.

Meta’s Reality Labs is a money pit. The launchpad for Meta’s alternate reality efforts generated just $440 million in Q1, up 30% but not nearly enough to justify the $3.8 billion operating loss it generated.

The unit has lost $45 billion since its inception. It will likely take years before the metaverse becomes a thing where people actively participate, let alone spend money.

Not that businesses aren’t trying. While initial e-commerce efforts seem centered around buying digital artifacts, Walmart (NYSE:WMT) is now piloting the sale of physical goods on Roblox (NASDAQ:RBLX).

It sounds like little more than a glorified storefront similar to the one you could visit on Amazon (NASDAQ:AMZN). It could also be the hardest part: convincing consumers this is any different (or better) than shopping on Amazon or the Walmart website itself.

A Better Use of Resources

Meta Platforms has been investing heavily in AI for some time, so the decision to increase its spending should not have been a surprise.

Its Llama 3 large language model has capabilities to rival any of the other LLMs on the market. Because Meta is pursuing AI as an open-source model, it hopes to establish Llama 3 as an industry standard companies will build upon.

CFO Susan Li said Meta’s capital expenditures will surge this year to between $35 billion and $40 billion, a $3 billion to $5 billion increase from its prior forecast.

Although not all of it will be on AI, the technology will be receiving a significant portion of the money. Which apparently has investors spooked. It seems a misguided fear.

It is clear AI is a transformative technology. Although I wouldn’t want to see Meta change its name to “AI Platforms,” spending on the technology and trying to establish itself as a leader in the space is a worthwhile pursuit. It is wholly a better use of resources than the metaverse.

The discount the market gave Meta Platforms stock seems to be an opportunity for investors to look to the future. Buying its stock now at a discount seems worth the price.

On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Rich Duprey has written about stocks and investing for the past 20 years. His articles have appeared on, The Motley Fool, and Yahoo! Finance, and he has been referenced by U.S. and international publications, including MarketWatch, Financial Times, Forbes, Fast Company, USA Today, Milwaukee Journal Sentinel, Cheddar News, The Boston Globe, L’Express, and numerous other news outlets.

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