Meta’s Underestimation of the Expenses Involved in AI Development

Meta’s first-quarter earnings report disclosed that the company miscalculated the cost of their AI initiatives by at least $5 billion, with capital expenditures expected to increase significantly. The tech giant’s aggressive investments in AI research and product development efforts are driving these higher costs, along with increased infrastructure and legal expenses.

The total expenses for 2024 are now projected to be between $35 and $40 billion, up from the original estimate of $30 to $37 billion. There is also an additional $2 billion increase in the minimum estimate for full-year 2024 total expenses, which are now projected to be between $96 and $99 billion. This adjustment is attributed to higher infrastructure and legal costs, as well as ongoing product development efforts.

Aside from AI, the increased expenses are also related to ongoing legal challenges faced by Meta, including an antitrust lawsuit and legal action from 33 states concerning children’s mental health. Additionally, significant increases in operating losses in Reality Labs are expected due to ongoing product development efforts and ecosystem scaling investments.

Max Willens, a senior analyst at market research firm Emarketer, emphasized that it is not surprising that Meta revised its guidance given the substantial costs associated with investing in this space. He pointed out that companies, especially those investing at Meta’s level, may encounter challenges with costs in the short term.