Stock price plunges as Zuckerberg initiates earnings call: "Very determined" to significantly increase AI investment before generating revenue

Even as the stock price plummeted, Mark Zuckerberg's determination to push AI forward remains unshaken.

On Wednesday local time, Meta announced its first-quarter results, with revenue and profits exceeding expectations, core advertising revenue growth accelerating, but the expected surge in AI spending spooked the market, causing the stock price to plummet after hours.

Amidst the stock price plunge, as the Meta earnings call began, Zuckerberg defended the AI investment frenzy, vowing to increase spending to make Meta "the world's leading AI company."

Zuckerberg stated that he believes Meta "should significantly increase investment in the coming years to build more advanced models and the world's largest AI services." He added, "These expenses must 'meaningfully grow' before we generate significant revenue from these new products."

Zuckerberg also acknowledged that returns may take some time:

It is worth noting that at this stage of our product strategy, historical stock price fluctuations have been significant, as we are investing in expanding a new product that has not yet become profitable.

Building leading AI will also be a much larger task than adding other experiences to our applications, which may take several years.

Zuckerberg's statement further fueled investor concerns about spending, with Meta's post-market decline widening to nearly 20%.

The drop on Wednesday wiped out all of Meta's gains since the last earnings report.

To alleviate market concerns about spending, Zuckerberg mentioned the company's "strong track record" in profitability. He stated that to increase revenue, Meta can expand commercial information, introduce advertising in user interactions with AI chatbots, and charge some users of large AI models.

In its first-quarter earnings report, Meta raised its capital expenditure guidance for the year, citing a significant increase in capital expenditure expectations from $30 billion to $37 billion to $35 billion to $40 billion this year to accelerate infrastructure investments to support the AI roadmap. Meta also expects capital expenditures to continue to increase next year.

In comparison, Meta's total capital expenditures last year were $28.1 billion. Last year, against the backdrop of a severe macroeconomic situation, Meta made significant staff cuts, cost reductions, and dubbed 2023 as the "year of efficiency."

However, as a new round of AI competition heats up in Silicon Valley, with tech giants like Microsoft and Google vying with each other, Zuckerberg is facing increasing pressure to ramp up AI investments What is even more worrying for the market is that, while heavily promoting AI, Zuckerberg still insists on his obsession with the metaverse. He stated that Meta will continue to invest in his long-term goal of building a virtual world full of avatars.

Meta's virtual and augmented reality division, Reality Labs, reported a loss of $3.85 billion in the first quarter of this year, which is roughly the same as the same period last year. However, Meta expects the department's losses to "substantially increase" year-on-year.

According to media reports citing Mike Proulx, director of research at Forrester: "The issue is whether Meta can participate in the artificial intelligence competition while maintaining a strong financial position. To achieve this, we hope to see more metaverse resources shifted to AI."