It’s a New Dividend Stock

When we talk about Meta Platforms $META “spending billions more” in its pursuit of AI dominance, it’s important to understand that the company was already spending tens of billions on this particular future technology.

That META was down as much as 19 percent during after-hours trading on Wednesday and shed another 10.56 percent during normal hours on Thursday suggests investors are unnerved by Mark Zuckerberg’s “spend to earn” approach here.

As Jack Denton of Barron’s put it, “The tech giant shocked investors with plans to spend even more aggressively on artificial intelligence.”

My question is, really?

“Shocked”?

META’s strength in 2024 certainly suggested people expected management to report stronger results. And revenue was up more than 27 percent year over year. Second-quarter guidance was softer than expected, but, again, if not quite rounding errors these are relatively insignificant figures.

Its year-to-date peak was on April 8, when it traded up to $531.49 but settled that day at $519.25.

META had been retreating from that high for two weeks heading into its earnings announcement, as people priced in their rate-cut-and-inflation disappointment. And those undercurrents resurfaced with authority on Thursday.

Sometimes selling takes on a life of its own, as people surrender their plans to the mania of the moment. Facebook and Instagram and WhatsApp are fine products that make many people happy, but what’s on offer is Mark Zuckerberg’s vision.

So, what changed about the META proposition, is my basic question.

The Bureau of Economic Analysis said its advance estimate of US gross domestic product for the first quarter showed annualized growth of 1.6 percent.

It missed the consensus forecast of 2.5 percent, and it’s the first quarter below 2 percent after six straight above that rate. Fourth-quarter GDP growth was revised upward to 3.4 percent.

The BEA also said the "core" Personal Consumption Expenditures Price Index, which excludes food and energy, was up 3.7 percent in the first quarter versus a consensus estimate of 3.4 percent and a fourth-quarter reading of 2 percent.

We’ll see complete PCE Price Index data for March this morning at 8:30 a.m. ET.

Multiple economists pointed out that below-the-surface data suggest the economy remains healthy.

KPMG Chief Economist Diane Swonk noted that much of the slowdown could be attributed to a widening of the trade deficit. Swonk also cited a drop in federal spending and a further liquidation of inventories, both of which will reverse in the second quarter.

Consumer spending grew by 2.5 percent, with spending on services offsetting a decline in big-ticket spending on items like cars.

That behavior was supported by payroll employment that was rising 30 percent faster at the end of the first quarter than it was at the end of the fourth quarter.

Underlying demand remains solid.

And the US position relative to the rest of the world seems more than solid.

As Greg Ip of The Wall Street Journal recently wrote, the US will account for 26.3 percent of global GDP this year, its highest share in almost two decades. That’s based on projections compiled by the International Monetary Fund.

“Despite trade wars, the pandemic, inflation and societal division,” wrote Greg Ip of The Wall Street Journal, “the US is gaining on its economic peers based on this admittedly simple metric.”

Ip identifies one major source of confidence and one major source of concern.

On the plus side, the US economy is structurally sound, innovating and reaping the rewards through increased productivity, with favorable terms of trade driven by rising energy output.

On the negative side, Ip notes that US growth is being supported by federal government spending and that deficits lead to higher interest rates and crowding out of investment.

Ip also notes the present danger of fiscal imbalances as well, the most obvious pressure from which is inflation. 

Economic theory holds that tight monetary policy plus loose fiscal policy will attract overseas capital and put upward pressure on the dollar, which is precisely what we’re seeing.

According to Ip, “That has often precipitated financial crises in emerging markets as exchange rates are devalued, governments default and banks fail.”

Emerging markets are less vulnerable than they’ve been in the past, but Ip warns of other potential outcomes, including protectionism.

“The US economy might still be king,” Ip concludes, “but the reign will not be harmonious.”