Market Analysis

Meta Platforms forecasts weaker Q2 sales guidance due to plans to increase spending on AI

Amos Simanungkalit · 25 Apr560 Views

Meta Platforms announced a more conservative revenue outlook for the current quarter, as the company aims to boost its annual spending significantly to capitalize on the burgeoning artificial intelligence sector.

In the second quarter, Meta anticipates total revenue to range between $36.5 billion and $39 billion, with a midpoint of $37.75 billion, falling short of the estimated $38.3 billion.

This adjustment in revenue forecast stems from Meta's projection that its capital expenditures for 2024 will now be in the range of $35 billion to $40 billion, up from the previous $30 billion to $37 billion. The company intends to intensify its investments in infrastructure to support its artificial intelligence initiatives. Notably, Meta's expenditure on AI development last year amounted to $28.1 billion.

During discussions with analysts, CEO Mark Zuckerberg, who had previously advocated for stringent cost-cutting measures in 2023, justified the increased investments as essential for Meta to establish itself as a global leader in AI technology.

Traders have raised concerns about the impact of heightened spending on AI chips and data centers, fearing potential margin compression and its repercussions on innovation and user acquisition spending. Goldman Sachs analysts cautioned that this narrative might result in a slight downturn in future revenue trends.

Stifel analysts echoed similar sentiments, questioning Meta's ability to effectively monetize AI in the long run to justify the current investment cycle.

Following the announcement, shares of Meta (NASDAQ:META) plummeted by more than 15% in after-hours U.S. trading.

Despite the tempered guidance and increased expenditure, Meta's first-quarter results surpassed analyst expectations. For the period ending March 31, Meta posted earnings of $4.71 per share (EPS) on revenue of $36.46 billion. Notably, all of Meta's regions experienced growth in ad pricing during this period. Analysts at Jefferies highlighted the positive growth trend. Analysts polled by Investing.com had predicted an EPS of $4.32 and revenue of $36.14 billion.

Furthermore, Meta reported a 7% year-over-year increase in family daily active users (DAP), totaling 3.24 billion on average for March 2024.