Meta Drops the Verse: AI Takes Centre Stage as Profits Fall and Rivals Turn Up the Heat

Facing Declines and Refocusing on AI

Facebook and Instagram’s parent company, Meta, is anticipated to report a decline in profits as it pivots towards artificial intelligence (AI) for potential growth. Analysts predict that the company’s profits for Q1 2023 will be around $5.2 billion, a 30% drop compared to the same period in the previous year. Meta’s revenue is also expected to fall by 1%, from $27.9 billion to $27.7 billion.

Mark Zuckerberg, Meta’s CEO, has disclosed that the development of AI technology and its integration into Meta’s products is the company’s biggest area of investment. Consequently, Meta has been purchasing Nvidia chips, costing around $10,000 each, needed to train new generative AI models. Despite these efforts, a memo from September reveals that the company is still lagging behind in AI, with significant gaps in its tooling, workflows, and processes.

The Metaverse Stumbles and the AI Obsession

The metaverse pivot has struggled to gain traction, leading to Zuckerberg dubbing 2023 Facebook’s “Year of Efficiency.” Meta has been laying off employees, reducing headcounts, and cancelling lower-priority projects to save costs. The company’s image has been largely centred around its metaverse push since the rebrand in 2021.

However, the focus has now shifted, with Zuckerberg becoming increasingly obsessed with AI as the future of technology and Meta. Bernstein analysts have warned that Zuckerberg’s newfound love for AI could lead to a name change to MetAI. Meta’s CFO has stated that AI would drive “substantially all” of the company’s capital expenditure growth in 2023.

Javier Olivan, Meta’s Chief Operating Officer, said that machine learning algorithms and AI would help create more relevant ads in the core business. Meta is now trying to grow its AI prowess to compete with OpenAI’s ChatGPT, a chatbot that can provide detailed answers to prompts in a matter of seconds.

Playing Catch-Up in the AI Race

Meta has been falling behind in adopting the hardware and software to support its AI ambitions, even after investing several billions of dollars in AI research for nearly a decade. Santosh Janardhan, the head of infrastructure at Meta, wrote in the internal message board that the company needs to invest heavily in AI infrastructure. The AI work will require a fundamental shift in Meta’s physical infrastructure design, software systems, and its approach to providing a stable platform.

With two rounds of layoffs and leadership changes, Meta is still struggling to keep up with rivals like Google and Microsoft. As the pressure intensifies, tech giants are racing to gain an edge in AI, and it seems that Meta is playing catch-up.

Investor and Analyst Concerns

Investors and analysts are concerned about Meta’s strategy and want the company to remain conservative on costs. Meta’s massive layoffs, which account for almost a quarter of the company, appear to be giving them what they want. Wall Street will be closely watching the company’s spending and investment plans as Meta reports quarterly results on April 26th.

In conclusion, Meta’s pivot towards AI may be a crucial strategy for the company’s future growth, but it remains to be seen how successful the company will be in this area. The decline in profits and revenue could be a sign of investor and analyst concerns, but Zuckerberg remains confident in the company’s future. The focus on AI could be the key to long-term success, but Meta must address its shortcomings and manage costs to stay competitive.