Meta's AI Spending: Investors Anxious Over ROI

Meta Platforms experienced a significant stock decline of 9% in premarket trading following its second-quarter earnings report, as investors grew concerned about the return on investment from its substantial artificial intelligence capital expenditures. The company reported earnings per share of $6.18, falling short of the analyst estimate of $7.22, although revenue exceeded expectations. The number of active users across Meta's applications also missed targets, totaling 3.6 billion.

The company's projected capital expenditures for the year have been revised to a range of $130 billion to $145 billion, an increase from previous estimates. This aggressive spending has led to a sharp decrease in free cash flow, which fell to $784 million from $8.55 billion in the same period last year.

Analysts are questioning the monetization strategy for AI investments, particularly beyond advertising, with some noting a lack of clarity on the company's AI plans. While the core business shows strong fundamentals and earnings power to support AI ambitions, many firms have lowered their price targets, reflecting uncertainty about the direct monetization of AI infrastructure and its timing.