Meta shares plunge due to frustration at AI spending promises
Meta shares fell sharply after investors reacted negatively to rising AI spending, declining profits and uncertainty over when the company’s artificial intelligence investments will generate returns.
Meta shares fell by as much as 11 per cent after investors raised concerns over the company’s escalating artificial intelligence spending and declining profits.
The Facebook and Instagram owner reported strong revenue growth for the April to June quarter, with sales rising 28 per cent year-on-year to $61 billion (£45.6 billion).
However, profits dropped 14 per cent to $6 billion, while investors questioned whether Meta’s huge AI investments will deliver meaningful returns.
Meta said it expects to spend between $130 billion and $145 billion this year, mainly on AI infrastructure. That is an increase from the $125 billion spending forecast announced just three months earlier.
Chief executive Mark Zuckerberg defended the investment, saying AI was already improving Meta’s core businesses and would eventually create new revenue opportunities.
He told analysts: "My personal bet is that the people who invest in this will feel very good and be rewarded over time."
Meta plans to begin selling AI tools and services to other companies, including access to its AI models and productivity tools.
Chief financial officer Susan Li said the company expects this business to become a major source of returns.
She said: "By 2028, we’ll have turned over a lot of cards."
However, those new revenue streams have yet to emerge. Meta’s free cash flow, the money remaining after operating costs and investments, fell to $784 million for the quarter, its lowest level in at least five years.
Mike Proulx, an analyst at research firm Forrester, said: "What it generated in cash this quarter almost all got eaten by AI infrastructure spending.
"Investors now have to decide whether Meta’s growing list of AI initiatives represents company diversification or distraction."
Proulx compared Meta’s current AI strategy to its previous metaverse push, which saw the company spend tens of billions of dollars developing virtual reality technology that struggled to attract mainstream users.
Zuckerberg said AI was already increasing engagement across Instagram and Facebook while helping smaller businesses create advertising. He also highlighted plans for autonomous AI agents that could complete tasks for users.
The Meta boss said: "Soon, we’ll have agents that can work 24/7 on your behalf."
Meta’s market reaction reflects wider concerns across the technology industry about the cost of AI development.
Google recently reported record AI spending that pushed its free cash flow into negative territory, while Microsoft received a more positive investor response after showing stronger profits alongside its AI investments.
As the AI race accelerates, investors are increasingly demanding evidence that massive infrastructure spending can translate into sustainable business growth.
