Meta Platforms has dropped hard amid concerns about artificial-intelligence spending and legal judgments against the social-media company. But CEO Mark Zuckerberg isn't likely to be deterred from his AI push, so investors have to hope its next model is a hit.
Meta shares were down 2.88% at $531.78 on Friday, after an 8% fall the previous day -- which shed $119 billion in the company's market capitalization. The stock is now down 12% over the past 12 months and the company has fallen to being the eighth largest U.S. company by market capitalization, below Broadcom and Tesla.
The immediate trigger for Thursday's fall was fear of a wave of legal judgments against the company after a jury found Meta liable in a social-media addiction case.
But the bigger backdrop is concerns about the company's spending on AI. Meta's free cash flow is expected to fall to $6.25 billion this year from $43.80 billion in 2025 according to FactSet, due to mounting capital expenditure on AI infrastructure.
Meta shows no signs of pausing. It has just increased its planned investment in one data center in El Paso, Texas, to more than $10 billion from $1.5 billion previously, the company said late Thursday. That's just one of 31 U.S. data-center projects that the company is planning.
"We are increasing our investment in El Paso to more than $10 billion and will now support more than 300 jobs at the data center once completed," Meta said in a statement. "Our construction needs will also grow and we now anticipate that over 4,000 construction workers will be on-site at the peak of construction."
Meta also addressed concerns about electricity usage, noting it plans to add enough clean and renewable energy to the El Paso grid to match 100% of the electricity use of the data center.
Meta's spending isn't unique -- Amazon.com is actually expected to have negative free cash flow of around $11 billion this year, due to its $200 billion 2026 capex plan. But Meta's issue is that unlike Amazon, it doesn't have a cloud-computing operation to defray those costs by renting out its AI capacity.
Meta has to justify its AI spending purely by its own operations. And while healthy advertising spending boosted its most recent earnings, there are concerns about its apparent inability to launch a cutting-edge AI to take on ChatGPT, Gemini and Claude.
Meta's latest AI model -- now nicknamed "Avocado" -- failed to perform as well as rivals and the company has decided to delay its release until at least May, the New York Times reported recently. Meta declined to give a time frame for the release but said it would be "good" and further releases this year would "push the frontier" in an emailed statement to Barron's.
"We continue to see Meta as range bound until a competitive new model is launched or more clarity [comes] around free cash flow," wrote Oppenheimer analyst Jason Helfstein in a recent research note, reiterating a Perform rating on the stock.
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