Meta's big AI spending is only getting bigger

Parent Facebook meta platforms (META-2.67%) has invested billion dollars into it artificial intelligence what it looks like Keep up with his Great 7 Competitors. The tech giant warned that this spending will only increase next year and beyond.

In his Third quarter earnings report On Wednesday, Meta increased capital spending Estimates for fiscal 2024 to $38 billion to $40 billion, from $37 billion to $40 billion previously. The company said it expects “a significant increase in capital spending in 2025” and “a significant acceleration in infrastructure spending growth next year.”

Chief Executive Mark Zuckerberg gave analysts a hint of what some of those investments might look like in a call Wednesday, but said the company would provide more details once it sets its fourth-quarter budget.

“First, it is clear that there are many new opportunities to leverage new AI advances to accelerate our core business, which should deliver strong ROI over the next few years,” Zuckerberg said. “That’s why I think we should invest more there.”

“And secondly, our AI investments continue to require serious infrastructure, and I expect we will continue to invest significantly there,” he added.

Meta shares lost about 1.8% shortly after the market opened on Thursday.

Read more: Three years after Facebook went meta, AI is Mark Zuckerberg's true success

Strategists at Jefferies (JEF-0.53%) estimates next year's spending to total $110 billion – a 14% increase from this year's estimated $97 billion, it said in a note Thursday. They also forecast capital spending of $52 billion, an annual increase of 33%.

“Investors have a tolerance for AI spending as long as they understand the vision and impact and can see active progress,” said Christophe Ponsart, partner in applied AI at consultancy Qvest.US. “Meta actively keeps the public updated on ongoing progress on these investments and releases models iteratively and frequently – this is a good thing for investors.”

The Menlo Park, California-based company made an effort Wednesday to show that its existing investments in AI are paying off. Meta said more than a million advertisers used generative AI tools to create more than 15 million ads last month.

Meta AI, the company's AI chatbot embedded in its popular social media platforms such as Instagram and Facebook, has more than 500 million monthly users. Zuckerberg had previously said it was on track to become this the most commonly used AI assistant in the world by the end of this year. And AI-driven feed and video recommendations have led to an 8% increase in time spent on Facebook and a 6% increase on Instagram this year.

Wedbush analysts led by Scott Devitt said they believe “increased investment is warranted given the benefits AI is already bringing to the company and the significant option for future growth” in its applications and at Reality Labs, the unit that is responsible for Meta's virtual and augmented reality projects.

In the three months ended September 30, Reality Labs suffered an operating loss of $4.43 billion. Meta said it expects operating losses to “increase significantly year-over-year.”

Bank of America (BAC-0.08%) Researchers said in a note Thursday that “Meta's growing AI focus could lead to positive product surprises in the coming quarters,” including AI customer service offerings and Meta AI ads or subscriptions, which could give investors additional optimism.

Overall, Wedbush said Meta's third-quarter results were “healthy” and showed the increasing momentum of AI. Meta reported net income of $15.69 billion, or $6.03 per share, for the quarter, up from $11.58 billion in the year-ago quarter – beats Wall Street estimates.

Revenue was $40.59 billion, up 19% from $34.15 billion a year earlier and beating Wall Street estimates of $40.19 billion for the quarter.

Meta has had a strong year, with the stock up around 68% so far in 2024.