Meta Is Spending Big on AI, But Analysts Want Clearer Answers

Social media giant Meta Platforms (META) is increasing its spending on artificial intelligence as it tries to catch up with tech competitors like Amazon (AMZN) and Alphabet (GOOGL). However, this move is worrying investors in the short term. Even though Meta reported strong first-quarter results, the stock fell after the company said it would add another $10 billion to its capex budget. While this extra spending is needed for things like data centers and hardware, it also raises concerns about how long it will take to see returns. Because of this, analysts are starting to question the payoff.

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Indeed, BofA’s (BAC) five-star-rated Justin Post said that AI spending is growing faster than expected, but the returns are still unclear compared to cloud companies. Similarly, Wells Fargo’s (WFC) Ken Gawrelski noted that strong ad revenue is giving Meta more time, but investors are becoming less patient. This is especially true since companies like Amazon and Alphabet already have clearer ways to monetize AI. As a result, five-star J.P. Morgan (JPM) analyst Doug Anmuth downgraded the stock due to pressure on free cash flow and uncertainty around how new AI products will generate revenue beyond ads.

Unsurprisingly, management is trying to calm investors. CEO Mark Zuckerberg said that the company is focused on making its spending more efficient, but he also admitted that there is no exact plan for how each AI product will scale over time. Interestingly, though, RBC’s (RY) five-star-rated Brad Erickson said that computing power is becoming more important as AI grows, and Meta may have actually underestimated how much it needs. Still, he believes the company could return to strong earnings growth once this heavy investment phase is over. For now, investors seem to be waiting for clearer proof that the spending will pay off.

What Is the Price Target for Meta?

Turning to Wall Street, analysts have a Strong Buy consensus rating on META stock based on 31 Buys, seven Holds, and zero Sells assigned in the past three months, as indicated by the graphic below. Furthermore, the average META price target of $826.66 per share implies 36.3% upside potential.