The Short Term vs. The Long Term
There’s a vision to be carried out here, people.
Meta Platforms $META – still better known by its Facebook, Instagram, and WhatsApp brands – sank in after-hours trading on Wednesday after management said capex is expanding beyond what it had previously budgeted and revenue is tracking below Wall Street’s forecast.META was down more than 12 percent shortly after its post-close earnings release.
The stock has been a market leader this year even as “The Magnificent Seven” has encountered more trouble than last year in its ride to glory, posting a gain of nearly 40 percent so far in 2024.
META reported revenue growth of 27.3 percent to $36.5 billion, slightly ahead of a consensus estimate of $36.1 million.
Management said second-quarter revenue would be $36.5 billion to $39 billion, while analysts were thinking more along the lines of $38.2 billion.
Management also said it will spend $35 billion to $40 billion on servers as well as AI hardware and data centers, up from prior guidance of $30 billion to $37 billion.
Competition with Microsoft $MSFT and Alphabet $GOOGL for AI dominance is fueling the capex expansion. META announced an $800 million data center in January, and it’s also developing its own AI chip as well as new iterations of its large language model.
CFO Susan Li said META will continue to accelerate its infrastructure investments to support its AI roadmap.
META didn’t provide figures beyond this year but Li said management expects capex will continue to increase in 2025 to support its “ambitious AI research and product development efforts.”
Investors, traders, and speculators seemed to be having a harder time seeing the potential for those efforts to effect the transformation management still sees coming.
What’s weird about the post-earnings release price action is that META is pushing out on the margins early in the execution phase of what will be a years-long project, or series of projects, the ambiguous timeline of which is ironically clear.
Is that capex budget expansion that big a deal? Management’s full-year forecast for total expenses remains largely fixed, so not really. Zuckerberg and company are simply pushing just a little bit harder.
That’s no indication either way of long-term success or failure.
The S&P 500 opened higher, trended lower through the morning and bottomed after lunch, rebounded and went green, softened and turned red, then closed on the upswing to continue its mini-rally here in the last full week of April trading.
All the major indexes had that same basic, healthy shape. Ryan Detrick of Carson Group reiterated on Wednesday a point he’s been making since March: Late April tends to be strong.
There are interesting – and positive – developments beneath the surface, including strong breadth data.
Even attention-grabbers like the “fear gauge” are easing – the CBOE Volatility Index is back down in the 15s after poking up into the 19s as recently as April 15, though it did surge late Wednesday toward the 16s.
This META thing, though, is a replay-in-opposite of Tuesday’s post-close Tesla $TSLA (which we’ll dig into a little deeper below), where the stock soared by more than 10 percent, with a lot less substance behind the move.
As hyper-reductive and even ridiculous as it may be, perhaps people just like Elon more than Zuck.
To think, we might have even more opportunity to observe silly price action when MSFT and GOOGL report after today’s close.