Meta's questionable spending

Hullo, it’s Alex in London. Meta, Alphabet and Microsoft investors had very different reactions to news about spending on artificial intelli [View in browser]( [Bloomberg]( Hullo, it’s Alex in London. Meta, Alphabet and Microsoft investors had very different reactions to news about spending on artificial intelligence. But first... Three things you need to know today: • Tesla makes key in-roads in China [after partnering with Baidu]( • Apple has intensified talks with [OpenAI for generative AI features]( • Japan’s oldest VC firm is close to [tripling the value of its investment]( A case of credibility It must be galling to run a company that makes more than $50 billion in profit (yes, you read that correctly — $50 billion), and have your investors [panic and freak out]( when you tell them you plan to spend just a fraction of that —$3 billion — more than you’d previously expected. Even more galling when you’re spending the money on something for which your rivals are being generously rewarded. And yet that’s the situation in which Meta Platforms Inc. Chief Executive Officer [Mark Zuckerberg](bbg://people/profile/15103277) found himself last week. On Wednesday, he said that Meta, the parent company of Facebook, Instagram and WhatsApp, would spend billions more than investors had expected, largely on investments in artificial intelligence that he expects to yield rewards further down the line. Compounded by a revenue forecast that was lower than anticipated, the announcement wiped $132 billion in value from Meta stock the next day. Barely 24 hours later, Google parent Alphabet Inc. and Microsoft Corp. announced their own sets of earnings. Google, too, said that capital expenditures would increase more than expected — almost $2 billion more. And yet [both Alphabet and Microsoft shares jumped](the following day as their earnings, much like Meta’s, beat analyst expectations. So what’s going on? Why is Meta being treated so differently than its tech peers. Well, partly it’s a case of once burned, twice shy. When justifying the increased outlay, Zuckerberg exhorted investors to remember when Facebook pivoted to mobile about a decade ago. They’re more likely, however, to remember a more recent pivot: to augmented and virtual reality, or the “metaverse,” as he likes to call it. From 2020 to 2022, [capital expenditures jumped from $15 billion to $31 billion](bbg://screens/META%20US%20Equity%20FA). And there was little obvious benefit to the bottom line. That prompted Zuckerberg to declare 2023 the “[year of efficiency](,” and he proceeded to fire thousands of employees. Investors rewarded him: Meta’s share price more than doubled inside 12 months. Finally, he said in February that this leaner operating structure would be “a permanent part of how we operate going forward.” He was signaling that Meta has become a company that cares about shareholder value in the near term, underscoring it by adding a $50 billion share buyback. In a high interest-rate environment, when they can get decent returns from simply investing in the bond market, shareholders are looking for more immediate returns from the stock market if they’re going to put their money there. All of which meant that last Wednesday’s announcement was a surprise. It signaled that Meta was a longer duration stock than investors had been led to believe: that it would take longer than they thought to get the returns they were expecting. Microsoft and Alphabet didn’t make that mistake. Yes, they both fired thousands of employees. But they never made grandiose statements about becoming permanently lean or limiting spending in perpetuity. In fact, under Chief Financial Officer [Ruth Porat](bbg://people/profile/2536317) over the past nine years, Alphabet has been more parsimonious than in previous years. And Microsoft has a strong track record of allocating its capital efficiently, with savvy dealmaking and technology investments. By the way, Alphabet also played the buyback game — announcing a $70 billion stock repurchase plan as well as its first dividend ever of 20 cents a share. What’s more, those two companies have better platforms from which to profit from AI investments: their cloud businesses. But Google and Microsoft have whole sales teams selling cloud services — including AI — to corporate customers. And it was demand for AI driving the revenue gains for those cloud units that pleased Alphabet and Microsoft investors, despite the companies’ rising expenses. The next test will be whether Amazon, which isn’t perceived as being as advanced in AI as Microsoft (through OpenAI) and Google, has seen any meaningful AI boost to its cloud business when it reports earnings on Tuesday.  —[Alex Webb](mailto:awebb25@bloomberg.net) Bloomberg Tech conference Hi, Tom Giles here, hijacking part of today's newsletter to hype our flagship Bloomberg Tech event, coming up May 9 in San Francisco. We've got a stellar lineup that includes Anthropic co-founders Dario and Daniela Amodei, Xbox President Sarah Bond, Snap CEO Evan Spiegel and Adam Neumann, the former CEO of WeWork, to tell us about his new real estate company, Flow. I'm especially excited to get the chance to interview Meta Chief Product Officer Chis Cox, Arm CEO Rene Haas and Reddit CEO Steve Huffman. [Learn More](. One to watch [Watch Intel Chief Executive Officer Pat Gelsinger interviewed on Bloomberg Television about the company’s earnings results.]( Get fully charged The Redstone family and David Ellison have offered concessions to investors [to smooth their deal for Paramount Global](. TikTok’s US-based general counsel [is stepping down.]( PremjiInvest, the largest Indian family office that manages over $10 billion for software tycoon Azim Premji, will invest more money into [artificial intelligence companies.]( More from Bloomberg Get Bloomberg Tech weeklies in your inbox: - [Cyber Bulletin]( for coverage of the shadow world of hackers and cyber-espionage - [Game On]( for reporting on the video game business - [Power On]( for Apple scoops, consumer tech news and more - [Screentime]( for a front-row seat to the collision of Hollywood and Silicon Valley - [Soundbite]( for reporting on podcasting, the music industry and audio trends - [Q&AI]( for answers to all your questions about AI Follow Us Like getting this newsletter? [Subscribe to Bloomberg.com]( for unlimited access to trusted, data-driven journalism and subscriber-only insights. Want to sponsor this newsletter? [Get in touch here](. 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