Meta has an AI product problem 

in between An unprecedented AI buildoutMeta is the most expensive. The company is building two massive data centers, and Reporting indicates US infrastructure will cost $600 billion over the next three years.

Those figures may not raise eyebrows in Silicon Valley, but they’re starting to make Wall Street nervous.

The issue comes to a head this week Meta Quarterly Earnings ReportThat shows the company’s operating expenses are $7 billion a year and capital spending is about $20 billion. This is the result of intense spending on AI talent and infrastructure, which has yet to generate meaningful revenue for the company. When the analyst Click for more specificsMark Zuckerberg has made it clear that the cost is starting.

Zuckerberg told analysts on the call, “It’s about trying to accelerate it to make sure we have the compute we need for both AI research and the new things we’re doing, and trying to move to a different state of our compute position in the core business.” “Our vision is that when we get the new models that we’re building out there at MSL and get like true frontier models with innovative capabilities that you don’t have anywhere else, I think that’s a huge latent opportunity.”

If his goal was to reassure investors, it didn’t work. At the end of the call, Meta’s share price was down. Two days later, the path deepened. Meta’s stock fell 12% at the closing bell on Friday, representing more than $200 billion in lost market cap.

It’s dangerous to read too much into stock prices, and in strictly financial terms, Meta’s quarterly earnings weren’t all that bad. (Nothing to complain about with $20 billion in quarterly profits.) But this was the first quarter where Meta’s aggressive AI spending had a visible impact on the company’s bottom line, both in terms of talent and infrastructure. More troubling was that, aside from massive data centers and well-compensated AI researchers, it wasn’t clear what the money actually bought.

Analysts pressed Zuckerberg on why he is spending so much on AI and when they can expect revenue from the increased spending. But the call came at a strange place in the METER plan, with no clear budget for projected costs and no available products that could anchor the revenue forecast. As a result, Zuckerberg had only general claims about the promise of AI.

“There’s going to be all kinds of new products around different content formats, and we’re starting to see that,” he said during the call. “And then there are business versions of these as well, like Business A … The other part is how the more intelligent models are going to improve the core business and improve the recommendations we make across the family of apps and the recommendations in advertising.”

Meta isn’t the only company spending billions of dollars on AI infrastructure, so why shouldn’t this same spending scare off investors in Google or Nvidia, both of which had great quarters. OpenAI is the biggest offender, spending the same amount with a much lower financial cushion than Meta.

There are indeed concerns that we are creating a bubble, and if we are, Meta’s core business will allow it to run things better than most.

But if you ask Sam Altman why he’s spending hundreds of billions of dollars on computing, he’ll tell you that he’s running one of the fastest-growing consumer services in human history—and bringing in $20 billion a year in revenue. We can argue about how sustainable the growth rate is (that’s a separate blog post), but beneath the OpenAI hype is a really fast-growing product. A rapidly growing ARR figure goes a long way in answering the question.

There is no such product as Meta, and it is unclear where it will come from.

The company’s most powerful AI product is the Meta AI assistant, which Zuckerberg noted on the call has more than a billion active users. But those numbers are certainly dwarfed by the three billion active users on Facebook and Instagram, and it’s hard to see the current version of Meta AI as a rival to ChatGPT. There’s also the Vibes video generator, which really did Encourage daily active usersBut beyond that there are limited business implications.

The most ambitious project Vanguard Smart Glasses Released earlier this month. However, the glasses feel more like an extension of the work of the Matter Reality Labs than a real attempt to harness the power of LLM.

Simply put, these are promising experiments, not fully formed products.

It’s telling then that when he was pressed on infrastructure spending, Zuckerberg’s response was not to point to recent launches, but to focus on the next generation.

Zuckerberg emphasized, while emphasizing the pending impact of the new models of the superintelligence lab, that he was very excited about the new product.

“It’s not just Meta AI as an assistant,” he said. “We hope to develop innovative models and innovative products, and I’m excited to share more when we have them.”

But this was an earnings call, not a product launch, so he said there would be more to share “in the coming months.”

As the market reacted, the answer appeared to be wearing thin.

To be fair, it’s only been four months since Zuckerberg revamped his company’s AI team, and the new superintelligence team still hasn’t had time to launch a groundbreaking AI product. But with the company spending billions of dollars to stay competitive on AI, there’s still no clear indication of what role Zuckerberg wants to play in the new industry.

Will Meta AI become a ChatGPT competitor using the company’s detailed store of personal data? Vibes is the first step in a consumer entertainment game, creating a targeted advertising system of meta? Or maybe Zuckerberg’s references to “business AI” hint at a more detailed enterprise play?

So far, it’s anyone’s guess. Whatever the answer, the pressure is on Meta to find out — and soon.