By Paul Smith and Luke Kinsella
The company behind Facebook and the software giant backing OpenAI are spending huge sums on artificial intelligence – and shareholders are starting to see dividends.
Mark Zuckerberg is talking up artificial superintelligence, and investors are loving it. According to one of Wall Street’s most influential analysts, the quarterly earnings calls of Meta and Microsoft will go down in history as the moment AI went from pipe dream to money spinner for investors.
Shares in the parent company of Facebook and Instagram, and the software giant that has become a major backer of OpenAI, soared in after hours trading, as the two companies released figures showing eye-watering investment in talent and infrastructure seems to be paying off already.
Bearish but well-respected Wedbush Securities analyst Dan Ives took to social media platform X and declared that after years talking about the AI revolution, this week would be remembered by the tech world and Wall Street for a long time. Meta shares spiked almost 12 per cent after its call, while Microsoft rose nine per cent, adding billions of dollars in value.
With the enormous amounts of money being invested in building out the data centre and related infrastructure to create and train AI systems, and the rabid pursuit of top talent on mind-boggling pay packages, there are ultimately only two paths – agreeing that AI really is about to change everything fundamentally, or cashing out now.
Most are choosing the former route. And with the words of Atlassian co-founder Scott Farquhar ringing in local investors’ ears from his National Press Club speech on Wednesday, which struck an optimistic tone around AI, it is clear that this outlook is not limited to Wall Street.
Meta’s quarterly revenue of $US47.5 billion ($73.7 billion) was up 22 per cent year-on-year, while its closely watched earnings per share of $US7.14 was $US1.26 higher than markets had expected. It will need to be generating money to justify a more than 20 per cent increase in its projected total spending, to between $US114 and $US118 billion, incorporating capital expenditure of between $US66 billion and $US72 billion.
Microsoft benefits from the AI boom, with customers consuming bigger loads of computing power through its Azure cloud computing business, and given the AI-powered software it is foisting on customers. Azure sales surpassed $US75 billion on an annual basis – the first time it has disclosed that figure – and capital expenditure will reach $US330 billion this year.
But it is Zuckerberg’s actions and rhetoric around AI investment that have been most stark in recent times. He has reportedly been so aggressive in his pursuit of top-tier talent that a pay package for a new hire has been up to $US300 million over four years.
Meta recently restructured its AI division, calling it Meta Superintelligence, and it is led by Alexandr Wang, the former chief executive of data labelling company Scale AI. He joined Meta in June after it made a $US14.3 billion investment for a 49 per cent stake in the company.
Superintelligence in sight
On the earnings call, Zuckerberg crowed about these AI researchers having access to unparalleled computing power, as Meta builds out several multi gigawatt clusters of AI infrastructure. Without giving a timeframe, he claimed that mythical superintelligence – where AI supersedes the intelligence of the smartest humans – is now in sight.
“We’ve begun to see glimpses of our AI systems improving themselves, and the improvement is slow for now, but undeniable,” Zuckerberg said.
“We are making all these investments because we have conviction that superintelligence is going to improve every aspect of what we do … at each step along the way so far, we’ve observed the more aggressive or fastest assumptions have been the ones that have most accurately predicted what would happen.”
Wilson Asset Management portfolio manager Tobias Yao said he was bullish about the AI investment trend both in the US and domestically, where he follows the tech sector. He said Megaport, Temple & Webster and Pro Medicus were three ASX-listed companies that stood to benefit from AI and its efficient implementation.
“Our job as investors is to be able to go through the entire investible universe and find the ones we think will come out first and benefit first,” he said. “We try to separate the ones that talk about AI and what they want to do, from the ones that have already been on the journey for the last 12 to 18 months and have been able to prove out the benefits.”
Depending on your view of Zuckerberg’s character, it is either alarming or invigorating to see his attempts to claw his way to the top of the AI pile after others like OpenAI’s Sam Altman made Meta look flat-footed.
He said AI was already having a notable impact on its advertising business, helping to improve targeting and growing user engagement across platforms. AI, he said, had also driven five per cent more ad conversions on Instagram and three per cent on Facebook, and more and more customers were using generative AI to create ads.
“Meta is showing that it can grow both the top and bottom line while positioning itself at the forefront of the next wave of tech. Their stock is up over 760 per cent from its 2022 lows – it’s Zuck’s world and we’re just living in it,” Farhan Badami, a market analyst at eToro, said.
In Zuckerberg’s words, there is a very high chance that the world is going to look “pretty different” in a few years. Initially, he thinks this will come in the form of everyone wearing AI-enabled glasses. In fact, he predicted those not wearing them would soon seem disabled.
“I continue to think that glasses are basically going to be the ideal form factor for AI, because you can let AI see what you see throughout the day, hear what you hear, and talk to you,” Zuckerberg said.
“I wear contact lenses, and I feel like if I didn’t have my vision corrected I’d be sort of at a cognitive disadvantage going through the world. And I think in the future, if you don’t have glasses that have AI, or some way to interact with AI, you’ll probably be at a pretty significant cognitive disadvantage compared to other people who you’re working with or competing against.”
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