Meta has an AI product problem

Meta is currently investing heavily in AI, spending more than most tech companies as it builds two massive data centers and plans up to $600 billion in U.S. infrastructure spending over the next three years. This massive outlay has made Wall Street nervous despite the scale being normal for Silicon Valley.

Financial Impact and Market Reaction

• Meta reported a $7 billion year-over-year increase in operating expenses and nearly $20 billion in capital expenses for the quarter.
• The spending is focused primarily on AI talent and infrastructure but has so far yielded no significant revenue returns.
• During Meta's quarterly earnings call, CEO Mark Zuckerberg emphasized that the spending on compute power and research is just beginning.
• However, the stock market reacted negatively, with Meta's share price dropping 12% and wiping out over $200 billion in market value shortly after the call.
• While Meta still posted a $20 billion quarterly profit, the visible impact of AI spending raised concerns among investors, especially given the lack of clear revenue-generating AI products.

Lack of Clear AI Product Revenue

• Analysts questioned Zuckerberg about when Meta would start generating revenue from its AI investments.
• Zuckerberg provided general optimistic statements about the potential of new AI models and products but lacked concrete details or a clear budget for AI spending.
• This uncertainty around product development and monetization strategy contributed to investor anxiety.

Comparison with Competitors

• Other companies like Google and Nvidia also spend billions on AI but have shown more tangible returns, so their spending hasn’t spooked investors.
• OpenAI is also spending heavily but justifies it with rapid consumer growth and $20 billion annual revenue.
• Meta, by contrast, does not have a fast-growing AI product with clear revenue like OpenAI's ChatGPT.

Current AI Products and Experiments

• Meta's most prominent AI product is the Meta AI assistant, which reportedly has over a billion active users. However, this number is boosted by Meta's large user base on Facebook and Instagram, and it does not currently compete effectively with ChatGPT.
• The Vibes video generator increased daily user activity but doesn’t have significant business impact yet.
• The recently launched Vanguard smart glasses project seems more related to Meta's Reality Labs research than a full AI product leveraging large language models.
• These initiatives are described as promising experiments rather than fully formed revenue-generating products.

Future Outlook and Strategy

• Zuckerberg highlighted excitement about upcoming AI products from the Superintelligence Lab (MSL) he recently created.
• He hinted at building novel AI models and products beyond just the assistant but gave no definitive timeline or product launches during the earnings call.
• The call ended with a promise of more news “in the coming months,” but investor patience appears limited.
• It has only been four months since the AI team restructuring, so significant breakthroughs might still be forthcoming.

Open Questions

• How Meta will leverage its extensive personal data for AI remains unclear.
• Whether products like Vibes or AI developments will lead to consumer entertainment or enterprise AI revenue streams is still speculative.
• Zuckerberg’s vision for Meta’s place in the AI industry is not yet clearly articulated.

Conclusion

Meta is in an aggressive AI spending phase with a large infrastructure and talent investment but currently lacks clear, revenue-generating AI products that reassure investors. The company’s future AI strategy and product impact are eagerly anticipated but remain uncertain at this stage, creating pressure to define a clear AI path soon.