Meta Stock Is Dragged Further Into Bear Market Territory by Heavy AI Spending

Core Viewpoint - Meta Platforms' stock has entered a mini-bear market, dropping over 20% due to concerns regarding heavy spending on artificial intelligence, despite reporting increased ad revenue and operational performance [2][5]. Financial Performance - Meta's third-quarter earnings showed a 26% increase in overall ad revenue, reaching a record $50.1 billion, while the Reality Labs division experienced a 270% revenue increase, albeit with a $4.4 billion loss [3][4]. - The company's AI spending surged to $18.8 billion in Q3, more than double the amount from the same period last year, with full-year projections potentially reaching $72 billion [4][5]. Market Reaction - The stock's decline of approximately 20% over seven days is significantly higher than the Nasdaq benchmark and the CNBC Magnificent Seven index, indicating investor skepticism regarding the company's future earnings potential [7]. - Analysts suggest that investors are questioning the sustainability of Meta's AI investments, which do not currently generate revenue from external clients, contrasting with other tech giants like Google and Microsoft [7][8]. Strategic Investments - Meta recently closed its largest corporate bond issue, raising around $30 billion, and secured an additional $27 billion through a structured deal for an AI data center in Louisiana [6]. - The company is increasing its expenses to attract high-paid talent for its AI initiatives, which could pressure profit margins and cash flows in the upcoming year [6]. Investor Sentiment - Analysts express uncertainty about how Meta's significant spending on AI will translate into earnings, especially given the company's historical losses in the Metaverse project, which have exceeded $70 billion over five years [9][10]. - There is a belief that if Meta's stock price declines further, the company may reconsider its spending commitments [10].