Meta Platforms was the latest victim of Wall Street’s lofty valuations as the stock took a sharp loss after earnings.
META – Daily Chart
Meta dropped $75 in after-hours trading and opened around $425. The support below is at $386 from 2021.
The Facebook parent company has forecasted higher expenses and lower-than-expected revenue, raising fears that its growing AI costs are outpacing its benefits.
“These earnings were a test to see if big tech firms that implement AI tech, rather than make the hardware, can generate revenue from AI. On this front, Meta’s earnings were a disappointment,” Kathleen Brooks, director at XTB, said in a research note.
Meta still reported a 27% increase in revenues, the highest growth rate since 2011, and a 117% increase in net income. Another strong point was a surge in net income, driven by a 16% year-on-year decrease in sales and marketing expenses.
However, analysts are concerned that Chinese advertising spending could suffer a slowdown in the future.
Meta also spooked investors with its expense forecasts, as it plans to spend more on AI products and computing infrastructure. The company is now projecting total expenses for 2024 to be between $96 billion and $99 billion, with capital expenditures in the range of $30 billion to $40 billion.
Meta was still higher by 40% year-to-date, but that has now dropped to X…
Other tech companies are struggling with the bull market valuations after IBM lost 8.5% on earnings. Social media companies like SNAP also slipped on the meta-release due to their reliance on advertising spending.
After Meta’s earnings, founder Mark Zuckerberg said on an analyst call that Meta “should invest significantly more over the coming years to build even more advanced models and the largest-scale AI services in the world.” This spending would grow “meaningfully before we make much revenue from some of these new products,” he added.
Meta could now test the late-2021 high around the $386 level. The initial market bounce may show traders focus more on the results than the spending outlook.