Meta's shares fall nearly 10% after disappointing earnings report

Meta's stock experienced a significant drop of nearly 10%, trading at US$528 as of 11:20 AM, following the release of its second-quarter financial results. While the tech giant, owner of Facebook, Instagram, and WhatsApp, surpassed revenue expectations, it failed to meet profit-per-share forecasts.

Analysts had predicted earnings per share of US$7.14 and revenues of US$60.2 billion. Meta reported revenues of US$60.8 billion for the quarter, but its earnings per share were US$6.18. According to AFP, the company's substantial investments in artificial intelligence and significant legal costs, including severance payments, negatively affected its results.

“

the cost of Meta for staying in the race for artificial intelligence and the high legal expenses and severance payments affected its results

Investors expressed concern over Meta's future profitability as the company raised its capital expenditure forecast. The projection for capital expenditures increased from a range of US$125 billion to US$145 billion to a new range of US$135 billion to US$145 billion. Meta plans to invest over US$145 billion this year, with the majority allocated to data center construction.

The unprecedented investments in the AI race have reduced Meta's profitability, with its operating margin falling from 43% to 31% over the past year. Markets are awaiting evidence of how these AI-related investments will translate into profits. In contrast, Microsoft reported strong AI monetization, with its shares rising up to 10% in pre-market trading.

“

The unprecedented investments in the race for AI reduce Meta's profitability: the group's operating margin has fallen from 43% to 31% in one year, and markets demand to see how AI-related investments translate into profits