"One stock that has seen the brunt of the market's worry about hefty AI spending is Meta Platforms (NASDAQ: META). The company is starting to extend itself a bit by spending more money than its cash flows are providing, requiring it to take on debt to fund its aspirations. This has the market extremely concerned, which is why the stock was about 20% off its all-time high."
"Meta is the parent company of multiple social media sites, including Facebook (its former company name) and Instagram. The company also has a Reality Labs division that's focused on bringing augmented reality and virtual reality devices to the consumer, although this segment has been a money pit. Management spends far more on this division than it generates, but it's more than made up for by its strong ad business."
"In the third quarter, $50.1 billion of its $51.2 billion in total revenue came from ads. The Family of Apps division (which encompasses the ad revenue) generated $25 billion in operating profits, while Reality Labs lost $4.4 billion. However, if the company can launch a product that incorporates generative AI into an everyday device that's not a computer or cellphone, as with the smart glasses it's developing, the fortunes of the Reality Labs division could flip. But there's no guarantee of that."
Meta Platforms is investing heavily in artificial intelligence and Reality Labs, causing spending to exceed cash flow and prompting the company to take on debt. The company's Family of Apps ad business produces the bulk of revenue and profits, with $50.1 billion of $51.2 billion in third-quarter revenue from ads and $25 billion in operating profits, while Reality Labs lost $4.4 billion. Market concern over heavy AI spending has driven the stock roughly 20% below its all-time high. Successful integration of generative AI into everyday devices, such as smart glasses, could reverse Reality Labs' losses, but success is not guaranteed.
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