RESOLVING THE LEDGER
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This post originally appeared in the Business Insider Today newsletter.
Meta's message to investors: The AI spending will continue until returns improve.
Investors' response: No thanks.
AI spend was the big focus during Meta's Q2 earnings report . And the pitch wasn't convincing enough to stop an after-hours selloff.
Meta was happy to credit AI with helping its advertising business (its bread and butter) rise 27%. And it wasn't just pure growth. Ad impressions grew 14%, while the average price per ad climbed 12%.
There's just one catch. Meta is still spending an incredible amount — $31.1 billion, roughly double what it spent last year — on its AI bets. That's eating up a significant portion of its free cash flow , which went from $8.55 BILLION to $784 MILLION. One analyst said the AI strategy is like " throwing spaghetti at the wall ."
Investors were unimpressed, with Meta's stock falling nearly 10% at one point after the bell.
Compare that to another tech giant that reported yesterday: Microsoft. It logged wins in Azure and Microsoft 365 Copilot, which Microsoft CFO Amy Hood touted in her quarterly memo to employees viewed by BI's Ashley Stewart. Perhaps more importantly, its AI budget forecast didn't budge .
Investors noticed. Microsoft's stock jumped almost 8% in after-hours trading.
The difference between the two is clear: AI spending is fine … as long as there is a direct and measurable return.
CEO Mark Zuckerberg made the case for why Meta's AI bets might need more time.
A lot of the most immediate use cases for AI are for developers . Just look at the boom in vibe coding. "Building for consumers is a little bit different," Zuckerberg said during Wednesday's earnings call, but it's also a "massive market opportunity."
And who better to serve that market than the king of all social networks? Between Facebook, Instagram, WhatsApp, and Threads, Meta has billions of users across its platforms. Zuckerberg said Meta's making a big bet on AI agents.
That all tracks with one small exception: A lot of Americans are really nervous about AI.
Meta has tried to ease those fears with a big AI PR push, including a Zuckerberg op-ed and some interviews with reporters. (The request to speak to BI Today must have got caught in my spam inbox. I'm happy to chat, Mark. Sounds like you have a really cool gym .)
BI's Peter Kafka has an idea about how Meta could better convince people to get on board with AI. ( Hint: It's green .)
Whatever the plan is, Meta had better figure something out fast. Investors are running out of patience.
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