Meta reports 14% profit drop as AI infrastructure spending surges to $130 billion
Meta Platforms, the parent company of Facebook, Instagram and WhatsApp, reported a 14% decline in quarterly profit on Wednesday, even as its revenue grew 28% year-on-year. The drop came as the company significantly increased its capital expenditure forecast for the year, largely to fund artificial intelligence (AI) data centres.
For the second quarter ended June 30, Meta posted revenue of $60.8 billion, up from $47.6 billion a year earlier. However, costs and expenses rose faster, jumping 55% to $42 billion. Net profit fell to $18.3 billion from $21.3 billion.
The company raised the lower end of its 2024 capital expenditure forecast to $130 billion, up from the previous projection of $125 billion made in April. Meta said much of this spending would go towards building data centres, the computing infrastructure required to train and run AI models.
“We are now at a point where our investments in AI are accelerating every major part of our core business,” Meta CEO Mark Zuckerberg said in a statement. He also mentioned that the company is exploring selling computing power directly to other businesses, which he called a “potentially interesting” new opportunity.
Despite the revenue growth, investors appeared concerned about rising expenses. Meta's stock fell more than 9% in after-hours trading following the earnings release. The company's spending plans mirror those of other tech giants such as Google, Amazon and Microsoft, which have also increased AI-related capital expenditure. Industry analysts estimate that big tech firms will spend a combined $1.5 trillion on data centres this year and next.
Meta faces unique challenges in monetising its AI investments, as it currently lacks a cloud computing business that rents out AI tools and computing capacity, unlike its competitors. However, the company is reportedly in talks with AI firm Anthropic, which has offered to buy up to $10 billion worth of computing power from Meta over time.
Beyond AI, Meta continues to grapple with legal and regulatory issues. It spent $2.4 billion on legal fees in the quarter, partly related to multiple lawsuits alleging that its social media platforms are addictive and harm mental health. The company lost the first of nine bellwether addiction trials in March, though a subsequent case was dropped by the plaintiff earlier this month.
On the product front, Meta's Reality Labs division, which develops AR/VR hardware including AI-powered smart glasses, generated $431 million in revenue, up 16% year-on-year. The division posted an operating loss of $4.6 billion, similar to the previous year. Meta's family of apps reached 3.6 billion monthly active users, a 3% increase from the year-ago period.
Meta also released the latest version of its AI model, Muse Spark, this month, and plans to launch a video generator soon. However, it still trails competitors in benchmarks for coding, reasoning and writing. A more powerful model, code-named Watermelon, is expected in the autumn.
Zuckerberg has been vocal in defending open-source AI models, arguing that tightly controlling development would stifle innovation. Meta faces an ongoing debate with rivals over the safety and accessibility of such models.
