Meta investors cheer as Zuckerberg doubles down on AI commitment

Mark Zuckerberg, chief executive of Meta Platforms Inc. Photo by David Zalubowski/AP files

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Meta Platforms Inc. keeps writing bigger checks in pursuit of its artificial intelligence strategy, and traders keep cheering it on, encouraged that the expensive bets will keep paying off.

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The stock is back near record territory after soaring more than 40 per cent from its April low. Last week, Meta finalized a US$14.3 billion investment in Scale AI, whose leader is joining a team being assembled by chief executive officer Mark Zuckerberg to pursue artificial general intelligence. That came just after Meta raised its capital spending forecast for 2025 to as much as US$72 billion.

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“The amount of spending might give some pause, but we’re confident Meta can use AI to drive revenue and accelerate growth,” said Jake Seltz, who manages the Allspring LT Large Growth ETF. “This shows Meta is committed to making the investments it needs to maintain its leadership, and while the stock has had a nice run, we’re still bullish on the long-term opportunity.”

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Meta’s rally has coincided with a resurgence in trader appetites for AI-related stocks, after the earnings season alleviated fears that Big Tech companies might rein in spending on expensive computing gear. The rebound marks a shift from earlier in the year, when stocks such as Nvidia Corp. tumbled on concerns about AI models developed on the cheap in China.

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An exchange traded fund that tracks AI stocks including Amazon.com Inc. is up 32 per cent from a low on April 8, the day before U.S. President Donald Trump paused tariffs on trading partners, sparking a broad relief rally in stocks. Over that period, the Global X Artificial Intelligence & Technology ETF has outperformed the S&P 500 and the tech-heavy Nasdaq 100, which have gained about 20 per cent and 27 per cent, respectively.

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Allen Bond, portfolio manager at Jensen Investment Management, bought Meta shares for the first time in recent weeks, in part because of the company’s aggressive spending on AI. He also cited improved operational efficiencies and the shift away from the so-called metaverse, which prompted the company to change its name from Facebook in 2021.

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“Using AI to optimize the data it has on users for revenue is a clear application, one that allows Meta to play offence while Alphabet (Inc.) is playing defence,” Bond said, referring to concerns that the Google parent could lose market share in the lucrative search business to AI services such as ChatGPT. “While AI is expensive, there is good evidence that it is really paying off so far.”

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Meta’s return on invested capital hit a record high of 31 per cent in the first quarter, more than double the levels from 2023 when the company’s metaverse ambitions were driving higher spending.

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Meta uses AI to improve ad targeting and increase engagement across its apps, which also include Instagram and WhatsApp. The Wall Street Journal recently reported that Meta is looking to fully automate ad creation, using AI technologies.