Oppenheimer on Meta downgrade: Significant AI investments despite unknown revenues

AI Investment & Strategy - Meta's increased spending is explicitly acknowledged, raising concerns about the return on investment, particularly regarding AGI and its impact on advertising revenue [1][2] - Investors are questioning whether Meta's AI investments, especially in areas like the Llama model and super intelligence, will effectively drive advertising revenue [2] - The market perceives Meta's AI spending as potentially disconnected from its current business, drawing parallels to the metaverse project, where returns were unclear [6] Financial Performance & Expectations - Meta's earnings per share are forecasted to grow only 3% next year, significantly lower than Google's expected growth of 25-26% [5] - While Meta is projected to grow earnings by 17% in 2027, investors are focused on the near-term (next two years) where Google is expected to deliver 50% faster earnings growth [5][6] - Meta and Alphabet are trading at similar multiples, but Google is perceived to have better expense discipline [6] Capex & Spending - The CFO indicated that Meta's capex plans for next year are not 100% finalized, leaving room for potential adjustments based on investor feedback [8] - A new corporate bond issuance by Meta received approximately $125 billion in orders, suggesting strong interest in funding Meta's capex through the bond market [9] Market Sentiment - Investor feedback over the next 6 weeks could potentially influence Meta to reassess its spending plans, especially if the stock price declines significantly (e.g., 15-20% lower) [8][9] - The bond market appears more willing to fund Meta's capex than the stock market at the current time [10]