Meta’s profit falls 14 percent as AI spending continues

Meta has made a big bet on artificial intelligence. On Wednesday, it said it would not release the bet.

The Silicon Valley company, which owns Facebook, Instagram and WhatsApp, raised the lower end of its capital spending forecast for the year to $130 billion, up from an April projection of $125 billion. Much of this investment will go into building data centers, the computing facilities that power AI

Meta also said its costs and expenses grew faster than revenue growth for the second quarter. Revenue reached $60.8 billion, up 28 percent from a year earlier, while costs jumped 55 percent to $42 billion. Profit was $18.3 billion, down 14 percent from a year earlier.

Mark Zuckerberg, CEO of Meta, focused on how artificial intelligence is helping his company’s business, including its digital advertising.

“We are now at a point where our AI investments are accelerating every major part of our core business,” he said. He added that “potential direct sales of computing,” which refers to computing power, could be a new business opportunity.

But investors seemed spooked by Meta’s rising expenses. The company’s shares fell more than 9 percent in after-hours trading.

Meta’s continued spending follows Google’s announcement last week that it will increase its capital spending. Big tech companies are expected to pay $1.5 trillion to build data centers this year and next. The huge sums have raised questions about whether such spending is justified, with the stock market fluctuating in recent weeks amid concerns over the spending.

Mr Zuckerberg previously said Meta was considering selling computing power from its data centers to other companies. In June, Anthropic offered to buy computing power from Meta in a deal that could be worth up to $10 billion; negotiations are ongoing.

Unlike Google, Amazon and Microsoft, which are also spending on AI data centers, Meta does not have a business that allows companies to rent computing power and AI tools.

People think AI spending is “supposed to slow, but who will be the first company to blink?” said David Wagner, director of equity at Aptus Capital Advisors.

Meta’s shift from a social media company to an artificial intelligence company has not been smooth. This month, it removed a feature that allowed people to create AI pictures of themselves on Instagram just days after its release, due in part to privacy backlash.

However, the company has made progress in developing its own artificial intelligence models. This month, Meta released the latest version of Muse Spark, its most advanced AI model developed under the leadership of Alexander Wang, the company’s chief AI officer. It also introduced AI image generator Muse Image and plans to release a video generator in the coming months.

Muse Spark still lags behind other AI models in benchmarks that measure coding, reasoning, and writing. Meta plans to release a more powerful model codenamed Watermelon this fall.

In recent days, Mr. Zuckerberg has also gone on the offensive against companies like Anthropic and OpenAI for defending open-source artificial intelligence models that are freely available for others to build on. In an interview with The New York Times on Tuesday, he said that tightly controlling the development of artificial intelligence would be “abandoning our values” and stifle innovation.

Meta also faces an ongoing lawsuit over claims its social media products are addictive, and said it spent $2.4 billion in legal fees in the second quarter. In March, it lost the first of nine lawsuits over the lieutenant’s addiction, but won a stay this month after one plaintiff, a 15-year-old from Florida, dropped his suit.

Meta’s AI smart glasses continue to be a bright spot. Its Reality Labs division, which develops the glasses, generated $431 million in revenue in the quarter, up 16 percent from a year earlier. The division lost $4.6 billion, about the same as a year earlier.

The Meta family of apps grew to 3.6 billion users, up 3 percent from a year earlier.