Meta’s Big AI Bets: High Stakes, Uncertain Returns
- Meta is making aggressive moves in the AI race, but these costly “superintelligence” bets may not boost short-term profits.
- Investors are watching for returns amidst rising spending and competition.
Mark Zuckerberg’s intensified focus on advanced artificial intelligence (AI) is putting Meta at a critical juncture. The CEO has initiated a significant talent acquisition drive, hiring researchers from leading AI firms. However, this increased spending is also intensifying pressure on Meta to demonstrate clear financial returns. Wall Street anticipates a challenging second quarter for the company, with projections indicating its slowest profit growth in two years.
Financial Outlook and Investment Strategy
Meta is expected to report an 11.5% increase in profit to $15.01 billion for the second quarter, accompanied by an almost 9% jump in operating costs. Revenue is also projected to show its slowest growth in seven quarters, with an estimated 14.7% rise to $44.80 billion, according to LSEG analyst averages. This financial performance occurs as Zuckerberg commits substantial resources to AI development. He recently pledged hundreds of billions of dollars for new AI data centers and invested $14.3 billion in Scale AI, even as Meta continues with layoffs.
Zuckerberg is no stranger to high-stakes investments, as Meta’s augmented reality unit has accumulated over $60 billion in losses since 2020. However, his current AI push carries added urgency due to the underwhelming performance of the company’s Llama 4 large language model. Investors have largely supported his pursuit of “superintelligence”—a theoretical AI surpassing human intelligence. This support has contributed to a more than 20% rise in Meta’s stock this year.
The AI Race and Meta’s Approach
Investors are closely monitoring whether Meta will further increase its capital expenditure for the year, especially after boosting it in April. This comes as rivals also escalate their AI investments; for instance, Alphabet recently raised its annual capital expenditure forecast by 13% to $85 billion due to strong demand for its AI-powered Google Cloud services. Ben Barringer, head of technology research at Quilter Cheviot, believes rising capital expenditure is positive, suggesting Meta could become a comprehensive solution for marketing departments. Meta launched a Superintelligence Lab last month, which will operate alongside Meta AI, its established research division led by deep learning pioneer Yann LeCun.
Meta aims to differentiate its AI efforts by releasing its work as open-source. Zuckerberg has also emphasized that superintelligence could become a mainstream consumer product through devices like Ray-Ban Meta smartglasses, rather than remaining purely enterprise-focused technology. Analysts suggest this strategy leverages Meta’s strengths, including its extensive social media user base of over 3 billion and recent engagement gains driven by AI-enhanced content targeting. Despite these advantages, Meta’s core advertising market faces headwinds from reduced advertiser spending amidst potential tariffs and strong competition from TikTok, whose U.S. ban now appears unlikely.
Challenges and Future Uncertainties
Minda Smiley, a senior analyst at eMarketer, points out that while some advertisers might have relied on proven platforms like Meta during uncertain times, this won’t shield the company from scrutiny regarding its superintelligence ambitions and their alignment with its overall business strategy. She states, “While Meta has seen massive gains from incorporating AI into its ad platform and algorithms, its attempts to directly compete with the likes of OpenAI are proving to be more challenging while costing it billions of dollars.” Questions persist regarding the timeline for achieving superintelligence, a timeline Zuckerberg admits is uncertain. Interestingly, Meta’s own Yann LeCun is a known skeptic of the large language model approach to achieving superintelligence.
MoffettNathanson analysts noted that Meta’s current AI strategy is more cohesive than in 2023, but they still sense the company is searching for clear direction. The success of Meta’s substantial AI investments will ultimately depend on its ability to translate these ambitious technological pursuits into tangible financial returns and a clear strategic advantage in a rapidly evolving competitive landscape. This ongoing evolution in AI development and its commercial application means that companies like Meta must continuously adapt their strategies to stay relevant.
An interesting aspect of the current AI talent war is the significant increase in compensation for top AI researchers. Reports indicate that experienced AI professionals can command salaries well into the millions, often including substantial equity packages. This intense competition for talent underscores the perceived value of expertise in this cutting-edge field and contributes significantly to the rising operational costs for companies like Meta.
