The difference for Meta is that Zuckerberg did a better job of convincing investors that AI is helping to improve results in its core business — digital advertising. The AI boost for others like Amazon.com, Microsoft and Alphabet hasn’t been as well articulated.
“It was his best earnings call as a public CEO,” said Gene Munster, managing partner of Deepwater Asset Management. “He explained the near-term benefits of AI, the long-term benefits and the timing of how all this is going to play out. And he did it in a compelling way.”
Meta has been using AI to improve the way its advertisers can find interested users, adding efficiency to the business that makes up almost all of its revenue. The company is also using proprietary large language models for better content recommendations that help drive engagement across Facebook and Instagram.
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As a result, earnings per share and revenue in the second quarter easily exceeded analyst estimates, prompting JPMorgan’s Doug Anmuth to declare that Meta “continues to earn the right to spend big on GenAI.”
At the same time, investors have grown more critical of spending by other Big Tech companies. Shares of Google-parent Alphabet have underperformed in the wake of its earnings report last month, which showed higher-than-expected capital spending even though profit and revenue beat estimates. Similar can be said of Microsoft, after its results highlighted slowing growth in the Azure cloud-computing business.
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Alphabet shares have fallen 9% following its July 23 earnings report, while Microsoft is roughly flat since its results were released on July 30.
“Google sort of said, ‘Well, we have to spend money to keep up with everyone,’ which didn’t really sell it very well,” said Alec Young, chief investment strategist at Mapsignals. “Microsoft sold it a little better. They’re effectively doing the same thing.”
Of course, Zuckerberg has had plenty of experience being in Wall Street’s penalty box. Just a quarter ago, the stock took a beating after the company raised its capital spending forecast while delivering slower sales growth than anticipated. That followed a disastrous pivot to the so-called metaverse that required big spending with little hope of near-term payoffs — leading the stock to lose nearly two-thirds of its value in 2022.
Apple, Microsoft, Alphabet, Amazon and Meta all poured more money into capex in the quarter that ended in June, bringing their combined outlays to a record US$55 billion ($71.94 billion), a 55% jump on a year earlier, according to data compiled by Bloomberg.
“Meta has been and will continue to invest significantly in Generative AI, but has arguably articulated its vision of AI integration more clearly than its competitors,” said Andrew Ye, investment strategist at Global X ETFs.
Charts: Bloomberg
