Meta's shares fell around 7% in early trading on Thursday, wiping $116 billion from the value of the Facebook owner. To put that into context, the drop in the price is just a smidge under the value of BP, one of the UK's largest companies.
On the face of it the sell-off looks odd given the company just reported better-than-expected results on almost every measure that matters.
Wall Street is in a funk over Meta's spending/investment, which in a single quarter hit $33.9 billion, with no sign that the capex taps will be turned off soon.
The result is that despite strong revenues and profits, Meta actually burned through more cash than it generated in the quarter, a situation that makes even enthusiastic investors just a little nervous.
About the bill
The bull case, as laid out by Dan Ives at Yorkville Ives, who raised his price target to $920, is essentially that the market is looking at the tab without properly appreciating what is being built.
His argument is that AI is already making Meta's existing advertising business more valuable, with the price of each ad rising 14% in the quarter, well ahead of expectations, because AI is making the targeting more effective and therefore more worth paying for.
The bigger story is Muse, Meta's AI assistant, which attracted more than 10 million users in the US and Canada in roughly six weeks.
Critically, Muse is not struggling to attract users, it is struggling to serve them fast enough because Meta does not yet have enough computing power to keep up with demand.
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That is an unusual and arguably enviable problem to have, and it is why the spending is rising rather than falling.
Ives believes the efficiency of running Muse will improve more than tenfold over the next year, which means the cost of serving each user will fall sharply even as capacity grows.
Why the maths could still work
If chief executive Mark Zuckerberg is right that Muse will eventually generate more revenue per user than Facebook or Instagram, the current spending looks far from reckless. Rather it is value accretive.
