#203 Meta's Comeback in AI That No One Is Talking About.
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In the tech world, Meta Platforms has been quietly pulling off a remarkable turnaround that has flown under the radar, overshadowed by Nvidia’s meteoric rise.
Over the past two years, Meta's stock has surged by a whopping 348%, putting most of its FAANG peers to shame. Among the broader "Magnificent Seven," only Nvidia’s 1,052% stock run has outpaced Meta.
But let’s not forget where Meta was in late 2022, a time when the company’s future looked as shaky as a three-legged stool.
The Crisis of 2022: Meta’s Identity Problem
At the tail end of 2022, Meta’s stock hit rock bottom, falling to an intraday low of $88.09 on November 4th. Investors were full of anxiety, and with good reason. Meta was grappling with multiple challenges that seemed insurmountable at the time:
TikTok was eating Meta’s lunch, stealing users with its addictive short-form videos.
Apple’s new privacy feature was making it more difficult for Meta to target ads on iPhones, hampering its core revenue model.
Meta had just gone through an identity crisis, having changed its name from Facebook, and the company was still figuring out how to position itself in the post-Facebook era.
To make matters worse, Meta’s revenue declined for the first time ever in 2022. It was a far cry from the days when its annual growth never dipped below 21%. Meanwhile, Meta’s Reality Labs division—the unit responsible for virtual reality (VR) and augmented reality (AR)—was racking up massive losses.
By late 2022, Meta appeared to be wandering in the wilderness, and its investors were seriously concerned. But in the words of Mark Zuckerberg, 2023 would be a different year—“The Year of Efficiency.”
Meta’s comeback didn’t happen by magic, but by strategy—cost-cutting first, and AI dominance next. In 2023, Meta drastically slowed its spending growth.
After ballooning expenses by 34% in 2021 and 23% in 2022, the company’s costs only rose by 1% in 2023. Meanwhile, capital expenditures, which had soared by 68% in 2022, fell by 13% in 2023.
One of Zuckerberg’s boldest moves? Meta laid off thousands of employees and slashed thousands of job openings. The leaner, meaner Meta was no longer the bloated tech giant it once was. This newfound discipline paid off: Meta’s stock skyrocketed, and it has since gained more than 560%, reaching a recent high of $582.01.
But that’s not all. Meta also started serving more ads across its “Family of Apps” (Facebook, Instagram, and WhatsApp). Daily active users grew by 8%, while ad impressions skyrocketed by 28%—thanks in part to Reels, Meta’s answer to TikTok.
The moves were defensive, sure, but they worked. Meta wasn’t just surviving—it was thriving.
The AI Revolution: Meta’s Bold Bet on Open Source
Here’s where things get interesting. While other tech giants were racing to keep their AI models behind closed doors, Meta went open source with its LLaMA language models. This decision essentially allowed Meta to crowdsource improvements to its AI technology. And the results? Rapid innovation and frequent new versions of LLaMA, each better than the last.
Meta’s AI platform, Meta AI, now boasts impressive capabilities. Its live image-generation tool rivals anything OpenAI or Google have to offer. By August 2023, Meta reported 185 million weekly active users for Meta AI, putting it within striking distance of OpenAI’s 200 million users for ChatGPT.
But here’s the kicker—Meta doesn’t charge for its AI tools. Unlike competitors who are busy monetizing through subscriptions and corporate paywalls, Meta offers its AI services for free across its platforms.
That’s right—no hidden fees, no premium plans, just free AI for all. Why?
Because Meta’s core business is advertising, and the more users it engages with free AI tools, the more ad revenue it can generate down the road. Zuckerberg has made it clear: "We’ll focus on monetizing it over time."
AI Spending and the Road Ahead
After slashing expenses in 2023, Meta is now ready to spend again, with a particular focus on AI. According to Zuckerberg, the company is investing heavily in Nvidia GPUs to build the infrastructure necessary for world-leading AI models.
As Zuckerberg told investors in April, Meta has the talent, data, and resources to scale its AI ambitions: “We should invest significantly more over the coming years to build even more advanced models and the largest scale AI services in the world.”
So, what’s next for Meta? It’s clear the company is doubling down on AI and its massive user base to stay ahead in the AI arms race. With competitors like OpenAI focusing on monetization through paid services, Meta’s “free AI” strategy could ultimately give it the upper hand—especially if it integrates AI tools seamlessly into its ad-driven ecosystem.
Meta vs. The AI Giants: Will Free Win?
As more companies rush to monetize AI, Meta is playing the long game. The company’s decision to keep its AI services free might seem counterintuitive, but it’s a brilliant strategy that aligns with its proven ad-based revenue model. By providing free AI tools, Meta keeps its users engaged for longer, serving more ads and, ultimately, driving more revenue.
For investors, this approach makes Meta one of the more intriguing players in the AI landscape. When the company reports earnings, analysts expect earnings to grow by 19% to $5.21 per share, with revenue climbing 18% to $40.2 billion, according to FactSet. That’s an impressive feat for a company that was once on life support.
Mark Zuckerberg and Meta have come a long way in the past two years.
From the depths of despair in late 2022 to a 560% stock surge and leading the charge in AI innovation, Meta’s journey is nothing short of remarkable.
Expect Zuck and his team to take another victory lap when they announce their earnings, reminding Wall Street that, while Nvidia might be the king of chips, Meta is making a play to be the king of AI—and it’s not charging you a dime.