Meta stock falls as $145bn AI spend chokes cash flow
Meta's shares plunged after it raised its AI spending forecast to as much as $145 billion, leaving investors questioning whether the tech giant is repeating its costly metaverse mistakes.
Meta shares fell sharply on Wednesday after the company told analysts it expects to spend between $130 billion and $145 billion this year, mostly on artificial intelligence. This revised figure is a steep increase from the $125 billion forecast the company issued just three months ago.
The immediate cost of this ambition is showing up on the balance sheet. Meta's free cash flow for the quarter dropped to $784 million, the lowest level in at least five years. "What it generated in cash this quarter almost all got eaten by AI infrastructure spending," said Mike Proulx, an analyst at Forrester.
For European investors, the sell-off highlights a growing fracture in the transatlantic tech sector regarding how much capital AI infrastructure justifies. The reaction signals that capital markets are losing patience with the "spend now, figure out monetization later" approach that has defined Silicon Valley over the past year.
Proulx noted a direct parallel with the company's previous pivot. "There's a bit of similarity to Meta's metaverse missteps in that Meta is once again spending ahead of proven product demand," he said. The warning resonates for European advertisers that ultimately fund Meta's revenues, as they weigh the actual value of AI-driven engagement tools against the hype.
Chief executive Mark Zuckerberg defended the outlays, arguing that AI is "accelerating every part of our core business" by boosting engagement on Facebook and Instagram. Looking ahead, he promised a shift toward selling AI models and tools directly to other enterprises, starting with making its Muse Spark model easier for companies to integrate. "We expect to build a large business for large businesses," Zuckerberg said.
However, these enterprise revenue streams have not yet materialized. Chief financial officer Susan Li offered a long timeline for returns, telling analysts that "by 2028, we'll have turned over a lot of cards." For European companies evaluating which tech vendors to trust for their own AI transformations, a four-year wait for a proven enterprise product represents a significant risk.
The market's frustration with Meta is not universal. Microsoft shares rose 5 percent in after-hours trading on the same day, despite chief financial officer Amy Hood outlining $175 billion in capital spending for the coming year. The key difference is immediate financial return: Microsoft posted $90 billion in sales for the quarter, up 18 percent, and profits jumped 31 percent to $36 billion.
The diverging fortunes of these two American giants offer a clear lesson for European markets. Massive AI expenditure is acceptable to investors, but only when paired with demonstrable, near-term profits rather than promises of future autonomy. As Google also reported record-low leftover cash last week, the tolerance for unprofitable AI scaling is rapidly running out.
