Meta Warns Of Accelerating AI Infrastructure Costs

Facebook parent Meta reported better-than-expected third-quarter revenue and profits, but user numbers were disappointing and the company warned to expect a “significant acceleration” in spending on artificial intelligence (AI) infrastructure.

The company’s shares declined around 2 percent in after-hours trading.

Meta’s share price has surged 70 percent this year on expectations that new generative AI technologies will drive revenues, but the company is under pressure to show that its investments to take advantage of AI are paying off.

Earnings per share were $6.03 (£4.7), higher than the $5.25 expected by LSEG analysts, on revenues of $40.59bn compared to an expected $40.29bn.

Soaring costs

Sales for the quarter were 19 percent higher than a year ago, with net income growing 35 percent year-on-year to $15.7bn.

The company said it had 3.29 billion daily active people for the third quarter, an in-house figure for users logging into one of its apps, which include Facebook, Instagram and WhatsApp.

The number grew 5 percent year-on-year, but was lower than analysts’ expected 3.31 billion.

Meta said capital expenditures for the full year 2024 would be $38bn to $40bn, up from previous guidance of $37bn to $40bn.

It also said investors should expect such costs to continue accelerating next year as it invests heavily in rolling out AI-powered features.

“Our AI investments continue to require serious infrastructure, and I expect to continue investing significantly there too,” said chief excutive Mark Zuckerberg on a call with analysts.

Ad revenues

Costs for full-year 2024 are expected to be in the range of $96bn to $98bn, lower than Meta’s previous guidance.

Advertising revenue was $39.9bn for the quarter, up 18.7 percent year-on-year and accounting for 98.3 percent of the company’s total revenues for the quarter.

Fourth-quarter revenues are expected to be $45bn to $48bn, the midpoint of which is higher than analysts’ expectations.

Reality Labs, the unit that produces its Oculus headsets and Ray-Ban tie-in smart glasses, lost $4.4bn in the third quarter, less than the $4.7bn expected by analysts.

Sales for the unit grew 29 percent year-on-year to $270m for the quarter, lower than analysts’ predictions.

The business unit’s activities, which revolve around the “metaverse” technologies that inspired its parent’s rebrand as Meta Platforms in 2021, has recorded an operating loss of more than $58bn since 2020.