Meta-digits become test for AI: good may not be enough
Wall Street looks anxiously at Meta's quarterly figures. Investors want proof that the billions invested in AI are sufficient.
After a heavy sell-off in technology stocks, Wall Street is mainly looking at Mark Zuckerberg's Meta this week. Wednesday night's quarterly figures will be an important test of confidence in the full AI investment cycle.
Nvidia lost more than $350 billion in market value last week alone. The Philadelphia Semiconductor Index fell more than 11 percent and the Nasdaq 100 lost about 5.5 percent.
Investors are increasingly doubting whether the huge investments in chips, data centers and computing power will ultimately yield sufficient turnover and profits.
Meta needs to address those concerns. Analysts expect quarterly sales to exceed $63 billion. That sounds impressive, but investors mainly look at the costs.
Adjusted operating profit is estimated at approximately $18.8 billion, lower than both a quarter earlier and a year ago. The operating margin can also drop to slightly below 30 percent.
The cause is clear. Meta spends huge amounts on AI infrastructure. The market therefore wants to see evidence that these investments actually lead to higher advertising revenues, better products and ultimately larger cash flows.
That's the problem. After years of strong price increases, the bar for technology companies is extremely high.
According to Barclays, companies that disappointed last quarter were severely punished, while companies that exceeded expectations often rose only to a limited extent.
Investors therefore want more than just good figures. They want convincing evidence that the investment wave remains profitable.
Moreover, Meta's results are only the first major test. A week later, Alphabet, Microsoft and Amazon follow. If multiple hyperscalers report rising costs and weakening margins, the discussion about AI investments could shift further from growth to return.
In addition, high inflation and rising interest rates in Europe and the United Kingdom continue to put pressure on financial markets.
Meta does not only have to defend his own figures on Wednesday. The company needs to convince investors that hundreds of billions in AI investments can ultimately yield hundreds of billions in economic value as well.