Meta demonstrates that the hype surrounding AI has its boundaries

Investor fatigue is setting in as Meta’s extravagant spending on artificial intelligence comes under scrutiny. Shareholders were once supportive of Mark Zuckerberg’s AI ambitions, but with slowing revenue growth and rising costs, their enthusiasm is waning.

Meta has been praised for its in-house development of generative AI projects, including the recent announcement of its first designed chip for AI models and the latest version of its generative AI model, Llama 3. However, the lack of a clear revenue timeline for these multibillion-dollar projects is causing concern.

The company plans to increase spending by up to $10 billion this year to cover infrastructure costs, with capex expected to reach $40 billion, 25% of forecast annual revenue. Despite the massive investment, it remains unclear what kind of AI company Meta is building, as it continues to rely on digital advertising for revenue.

Integrating generative AI into products like Instagram and Facebook is an attempt to boost engagement, but the company has not provided evidence of increased user time spent on these platforms. To compete with TikTok, Meta would need to significantly increase engagement, a challenge that may take years to overcome.

While Meta’s operating profit has risen, the scale of its AI ambitions is only just beginning to surface. With funds to spare, the company’s future spending on AI remains uncertain. Zuckerberg’s reassurances likening the project to previous investments may not be enough to quell investor concerns as Meta’s AI journey unfolds.