Mark Zuckerberg Wrote That AI May Soon Deliver “Personal Superintelligence to Everyone” Just Before Meta’s Free Cash Flow Cratered 91%. Do Investors Buy the Vision?
Meta Platforms (META -0.39%) CEO Mark Zuckerberg made some bold claims on the company’s second-quarter earnings conference call, but they weren’t enough to appease investors after the company reported lackluster earnings results.
The company’s earnings came up short of Wall Street consensus estimates, and its revenue guidance for the current quarter also fell short of consensus. Free cash flow also tanked in the quarter to just $784 million, down from over $8.5 billion one year ago. This represented a 91% drop.
Image source: Getty Images.
Like other hyperscalers, Meta has seen free cash flow plummet due to massive investments in artificial intelligence (AI) infrastructure. The company is guiding for capital expenditures (capex) between $130 billion and $145 billion this year.
Despite the bad news, Zuckerberg also told analysts during the earnings call, “We’re also progressing in our efforts to bring personal superintelligence to everyone, with exciting model releases, and we expect to build on that momentum over the course of this year with new products.”
Do investors buy this vision?
Wall Street clearly isn’t convinced yet
Following the earnings report, Meta’s stock plummeted. While it’s possible investors overreacted, it’s also clear they are not buying Zuckerberg’s claims about superintelligence, a form of intelligence that can match or surpass human cognitive abilities.
AI can do some pretty incredible things, but it isn’t yet clear that companies will achieve superintelligence. More so, it’s unclear what ramifications actually achieving such technology might have for society.
Institutional investors typically won’t credit companies with grandiose plans until it is clear they are reflected in a company’s financials. Right now, investors see the financials trending in the wrong direction and are concerned that all of the capex will not yield adequate returns.
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For Meta in particular, I also think investors are likely skeptical of Zuckerberg’s all-in spending plans, given what happened to the company’s Reality Labs division.
Zuckerberg changed the name of the company from Facebook to Meta in 2021, on another big bet on virtual reality, wearable hardware, and the metaverse. But since late 2020, Reality Labs has racked up over $80 billion in operating losses.
Now obviously, companies like Meta can afford to make big bets and should to some extent. It’s quite possible that not investing in AI could get them penalized by investors as well.
However, when you invest hundreds of billions, there is simply no margin for error. Companies that don’t show results will see their stocks punished, and Zuckerberg’s talk of superintelligence won’t change anything in the stock’s price until it materializes.
