With his bet on the metaverse, Mark Zuckerberg burned through tens of billions of dollars; some observers had already written off the Facebook company. But suddenly the prices rise.
Meta has pre-ordered hundreds of thousands of high-performance chips from Nvidia to advance the training of its AI models.
Peter Dasilva / Reuters
“Move fast and break things” – this motto of Facebook founder Mark Zuckerberg almost cost him his life’s work two years ago. It was October 2021, and Zuckerberg – to this day CEO and Chairman of the Board – surprisingly turned the steering wheel as the sole captain: In the future, the company would rely entirely on the Metaverse, i.e. the idea of a virtual parallel world, rename itself Meta and invest billions of dollars in it Invest projects.
From today’s perspective, it was a colossal wrong decision. Meta has burned through about $50 billion on its Metaverse efforts so far, with no breakthrough in the user market in sight. Not only consumers, but also investors did not follow Zuckerberg on his journey to the new, beautiful world: the share price collapsed by three quarters within 14 months.
To make matters worse, Apple cut off access to user data on the iPhone almost at the same time. But this is exactly the kind of data Meta needs for its advertising business, from which the group makes 98 percent of its sales. In the first nine months alone after the new data protection settings were introduced, this step cost Meta around $10 billion.
Zuckerberg’s life’s work was in ruins. One in four employees was laid off, construction projects were frozen, and annual sales fell in 2022 for the first time in the company’s history. It seemed like it was all downhill from here for Meta.
Investing in AI was also a stroke of luck for Zuckerberg
But the group is currently experiencing a remarkable comeback. The share price has climbed to an all-time high of $385, and Meta will soon reach the symbolic stock market value of $1 trillion on the markets for the first time. Sales rose to an all-time high in the third quarter of 2023, according to the most recent figures available.
Meta shares are at a record high
Share price, indexed
It turns out to be an absolute stroke of luck for Zuckerberg that he has been investing in artificial intelligence since 2013. As head of Meta’s newly founded AI unit, he was able to bring Yann LeCun on board, one of the most prominent AI researchers, who in turn brought other leading researchers with him. In 2018, LeCun received the Turing Prize, a kind of Nobel Prize for computer science.
Yann LeCun
Markus Schreiber / AP
The fact that Zuckerberg was very lucky and not just sensible with the investment is suggested by at least one anecdote that “Bloomberg Businessweek” recently described: In 2021, Zuckerberg and Sundar Pichai, CEO of Google, met at a tech conference in the mountains of Idaho. The latter congratulated Zuckerberg on a technological breakthrough that Meta’s AI team had recently achieved. Since Google is at the forefront of AI research worldwide, Pichai’s compliment weighed heavily – only Zuckerberg had no idea what exactly he was talking about. At that time, AI was a sideshow for him. But Pichai’s comment shook Zuckerberg awake – back at the company’s headquarters in Menlo Park, he was regularly informed about the progress of his AI unit and continued to invest in the area.
With success: Meta has now managed, firstly, to ensure that users stay on the company’s platforms longer because the AI now determines what content they see in their news feed. Second, Meta has provided its advertisers with an AI toolbox to help them create the most effective ads. In this way, Meta was also able to make up for some of the advertising losses that it lost due to Apple’s stricter data protection conditions, reports the Financial Times.
“We have been investing in AI for years, and now the technology is moving to the forefront of our business,” Justin Osofsky, who leads sales at Meta, recently told the news platform Axios. Even in investor calls, Zuckerberg now talks significantly more about AI than about the metaverse. However, unlike his ideas for the metaverse, investors now share Zuckerberg’s beliefs. This is a remarkable change compared to 14 months ago.
In order to be able to train its AI models, Meta now wants to invest primarily in data centers and AI hardware. The CEO announced last week in a video on Instagram that the company wants to own 350,000 of Nvidia’s latest high-performance chips by the end of the year; These are a kind of oil in the engine of all AI research and are extremely sought after. Hardly any competitor is likely to have such a large oil well.
In the long term, Meta’s goal is “general” artificial intelligence – and Zuckerberg made it clear that its own ambitions are great and that it plays in the same league as Google, Microsoft and Open AI. The idea that an AI can achieve human-like abilities is considered the Holy Grail of research.
What is interesting is that, measured in terms of sales, Meta spends significantly more on research and development than other companies in Silicon Valley. In 2022 it was around 30 percent of sales, compared to 13 percent for Microsoft’s competitors, and similarly for Alphabet and Apple.
Meta also benefits from the market environment
AI helps Meta at a time when the advertising market has not yet shaken off fears of recession and is still volatile. The shares of companies like Snap and Pinterest, which, like Meta, are financed primarily through advertising revenue, have not yet recovered from their slump on the stock markets.
However, Meta’s price gains must also be viewed in the broader market environment. Other technology companies are also currently benefiting from investors’ optimism regarding AI and from the general belief that the next big wave of technology will soon bring profits into the company’s coffers.
Microsoft, which works closely with Open AI, is close to a $3 trillion stock market valuation. Shares in Google’s parent company Alphabet are also expected to climb to an all-time high in the next few days. The Nasdaq technology index has also increased by 4 percent since the beginning of the year. But nowhere is the upturn as drastic as in Meta, which has already been declared dead, whose shares have risen by 11 percent since January 1st alone.