Meta Warns Of Worsening AI Losses After Sales Narrowly Beat

(Bloomberg) -- Meta Platforms Inc. CEO Mark Zuckerberg will ramp up heavy investments in AI and other futuristic technologies, continuing a years-long tug-of-war between the company’s long-term bets and the core advertising business that provides the vast majority of Meta’s revenue. 

Zuckerberg warned investors Wednesday that Meta will continue to spend significantly on infrastructure and other projects like the metaverse and AI-powered glasses, efforts he believes are core to the company’s future. That will be supported by the ads business, which isn’t generating the kind of momentum Wall Street expected. 

Shares fell more than 4% in premarket trading on Thursday before New York exchanges opened. The stock had closed 0.25% lower at $591.80 on Wednesday.

“We’re seeing AI have a positive impact on nearly all aspects of our work, from our core businesses to new services and computing platforms,” the Meta chief executive officer said during its third quarter earnings call. “There are lots of opportunities to use new AI advances to accelerate our core business.”

Meta cautioned that losses from Reality Labs, its division focused on artificial intelligence and augmented reality, will continue to widen “meaningfully” this year, adding that the 2025 budget is still being finalized. Reality Labs reported a $4.4 billion operating loss in the quarter.

With costs projected to reach nearly $100 billion this year, Meta is putting pressure on its core advertising business to fund the effort. Meta told investors Wednesday that revenue for the current quarter would be between $45 billion and $48 billion. Analysts were expecting fourth-quarter revenue of $46 billion.

Zuckerberg has worked to re-frame the social media company as an AI innovator in recent years, changing investor perception of Meta’s potential growth. Meta has developed several key AI products as part of that pivot, including large language models used to power chatbots, an assistant built into its various social apps, and AI-powered smart glasses. Meta is already working on the next version of Llama, the large language model that powers its AI products and services, and Zuckerberg said Llama 4 will be faster, more powerful and more cost-effective than previous models.

Some of Zuckerberg’s most ambitious projects, though, are still years away from mainstream consumption. Eventually Zuckerberg hopes that users will work and play inside of a digital universe known as the metaverse, which Meta is still building out. The company also recently unveiled its first pair of augmented reality glasses, which can project images onto the physical world. Zuckerberg hopes that those glasses, called Orion, may one day rival the smartphone.

That focus on AI has helped fuel Meta’s stock price, which was up more than 67% this year at market close Wednesday, making it one of the best performing stocks in the S&P 500. But it has also come with a steep cost. “Our AI investments continue to require serious infrastructure and I expect to continue investing significantly there,” Zuckerberg said.

Meanwhile, Meta’s social networks, including Facebook and Instagram, continue to drive the bulk of the business. Meta reported sales of $40.6 billion for the period ended Sept. 30, a jump of 19% over the prior-year quarter, and just above the $40.3 billion average estimate from Wall Street analysts.

Meta has leaned on AI advancements to improve its ad targeting and content recommendations, which have had a more immediate impact on business results. The company has pivoted its algorithms to show people more content from outside their network of friends and family, part of a broader strategy to increase engagement and keep people scrolling. It’s also been reducing the spread of political content.

AI-driven feed and video recommendations have led to an 8% increase in time spent on Facebook and a 6% increase on Instagram, Zuckerberg said Wednesday. Those recommendations are largely powered by AI advancements, which help the company more accurately predict what people want to see.

Meta said its expenses for the year will be $96 billion to $98 billion, lowering the top end of that range by $1 billion.

(Updates with premarket trading in third paragraph)