Asger Risom
Meta is increasing AI spending despite massive metaverse losses and a drop in users, raising concerns among investors over costs and long-term returns.
Meta is doubling down on its future bets — even as warning signs emerge in its core business.
A sharp rise in spending and a drop in users have rattled investors, sending the company’s stock lower despite strong earnings.
Strong results, weak reaction
Meta reported revenue of $56.3 billion for the first quarter and net income of $26.8 billion, boosted in part by a one-off tax benefit, according to filings cited by Fortune.
Revenue rose 33% year-on-year, marking the company’s fastest growth in five years.
Yet the market reaction was negative, with shares falling nearly 9% as investors focused on rising costs and slowing user growth.
User decline raises concerns
The company reported a drop of 20 million users across its apps compared to the previous quarter.
Chief financial officer Susan Li attributed the decline to “internet disruptions in Iran, as well as a restriction on access to WhatsApp in Russia.”
Despite the dip, Meta still counts more than 3.5 billion daily active users across Facebook, Instagram and WhatsApp.
AI spending surges
A major concern for investors is the scale of Meta’s planned spending on artificial intelligence.
The company raised its capital expenditure forecast by nearly $10 billion, now expecting to spend between $125 billion and $145 billion this year.
Li said the increase reflects how quickly demand for computing power is growing as AI systems become more advanced.
“We have continued to underestimate our compute needs,” she said during the earnings call.
Metaverse losses mount
At the same time, Meta continues to pour money into its Reality Labs division, which focuses on virtual reality and the metaverse.
The unit reported an operating loss of $4.03 billion for the quarter, adding to total losses of around $80 billion since 2020.
The company has also cut costs, including laying off about 10% of Reality Labs staff as part of broader job reductions.
Investors grow cautious
Analysts say the combination of heavy spending and uncertain returns is creating tension among investors.
“The market was less united on what to make of the spending plans,” said Matt Britzman of Hargreaves Lansdown.
He noted that investors are weighing the long-term potential of AI against the immediate financial burden of building it.
High stakes strategy
Meta’s aggressive investment comes as it tries to compete with rivals such as Google and OpenAI in the race to dominate AI.
While the company has seen improvements in its advertising business, the scale of its spending means expectations are high.
For now, Meta is betting that massive upfront costs — whether in AI or the metaverse — will eventually translate into long-term growth.
Sources: Fortune
