(Bloomberg) — Big tech companies investing heavily in artificial intelligence and wanting to stay in investor good graces should follow Meta Platforms’ example.
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Shares in the Mark Zuckerberg-led company have risen 13% this month, well outperforming big tech companies even as the company said it has ramped up capital expenditures again and plans to spend more on the way. The stock was up 0.3%, inching closer to its all-time closing price last month.
The difference with Meta is that Mr. Zuckerberg has done a better job of convincing investors that AI is helping the company improve results in its core business, digital advertising. The boost that AI has given other companies, including Amazon.com Inc., Microsoft Corp. and Alphabet Inc., has been less clearly explained.
“It was his best earnings call as a public company CEO,” said Gene Munster, managing partner at Deepwater Asset Management. “He explained the short-term benefits of AI, the long-term benefits and the timing of how this all plays out, and he did it in a compelling way.”
Meta is using AI to improve how advertisers find interested users and drive efficiency in the business that makes up nearly all of its revenue. The company also uses its proprietary large-scale language models for better content recommendations that help drive engagement on Facebook and Instagram.
As a result, second-quarter earnings per share and revenue significantly beat analyst expectations, leading JPMorgan’s Doug Ammuth to declare that Meta “continues to earn the right to invest significantly in GenAI.”
At the same time, investors have been critical of spending at other big tech companies. Shares of Google-parent Alphabet Inc. have slumped after it reported earnings last month that showed higher-than-expected capital spending, even as it beat expectations on profit and revenue. The same is true for Microsoft Corp., whose results showed slowing growth in its Azure cloud-computing business.
Alphabet’s shares fell 9% following its earnings report on July 23, while Microsoft’s shares have remained roughly flat since reporting results on July 30.
“Google said, ‘Well, we have to spend money to catch up with other companies,’ but that wasn’t a good pitch,” said Alec Young, chief investment strategist at MapSignals. “Microsoft’s pitch was a little better. They’re essentially doing the same thing.”
Of course, Zuckerberg has plenty of experience in Wall Street’s penalty box. Just a quarter ago, the stock took a hit after the company raised its capital spending outlook but posted slower-than-expected revenue growth. Before that, the company’s disastrous pivot into the so-called metaverse, which requires big spending with little prospect of short-term benefits, caused the stock to fall by nearly two-thirds in 2022.
Apple, Microsoft, Alphabet, Amazon and Meta all pumped money into capital expenditures in the quarter ended in June, bringing combined spending to a record $55 billion, up 55% from a year earlier, according to data compiled by Bloomberg.
“Meta has been and will continue to be a major investor in generative AI, but it has arguably articulated its vision for AI integration more clearly than its peers,” said Andrew Ye, investment strategist at Global X ETFs.
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–With assistance from Tom Contiliano, Carmen Reinicke, and Jeran Wittenstein.
(Updates stock price movement in second paragraph)
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