Mark Zuckerberg Published a 6,500-Word AI Manifesto This Week Defending Meta's Unrestricted AI Buildout. Here's Why Investors Should Care.
Key Points
Mark Zuckerberg released a 6,500-word manifesto detailing his plan to accelerate the agentic AI buildout and give everyone superintelligence.
These investments can finally help Meta Platforms diversify beyond online advertising, just like Alphabet and Amazon.
Meta Platforms is still losing a lot of money from AI, and the metaverse debacle may be fresh in some investors' minds.
Meta Platforms (NASDAQ: META) CEO Mark Zuckerberg released a 6,500-word manifesto detailing how the company will make agentic artificial intelligence (AI) a mainstream resource.
"Everyone will have an exceptionally capable personal agent that understands you, your goals, and everything you care about," Zuckerberg said in his open letter.
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Superintelligence can revolutionize industries and give consumers access to more valuable tools, but what about investors? Here's how the company's efforts to double down on its AI buildout will affect shareholders.
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Superintelligence can diversify Meta Platforms' revenue
It's no secret that Meta Platforms makes almost all of its revenue from online advertising. It represented 97.6% of total revenue in the second quarter, with "Other revenue" and Reality Labs making up the remaining sliver.
Meta Platforms has been trying to diversify beyond online advertising for several years. Other tech rivals like Amazon and Alphabet have diversified into multiple industries, with online advertising still playing a key role.
Meta Platforms fumbled with the metaverse, and subscription revenue hasn't been moving the needle much. AI agents can initiate the revenue diversification Meta Platforms has been seeking for years. A push into neocloud services, which Zuckerberg floated earlier this year, can also aid the company in unlocking new income streams.
This development can make the company less reliant on advertising, which is still a fast-growing segment. The stock only trades at a price-to-earnings (P/E) ratio of 20, which is a low valuation just for the online advertising component. Any meaningful commercial progress with the superintelligence buildout can trigger a big rally, especially if online advertising revenue growth rates remain elevated.
Meta Platforms is still losing a lot of money on AI
Meta Platforms is still doing fine. Revenue jumped by 28% year over year in the second quarter. Operating income dipped by 8% year over year, but it may be a small price to pay if diversification efforts pay off.
"If" is the big problem here. The Metaverse debacle was a few years ago, but high capital expenditures without the payoff can bring that memory back. Reality Labs produced a $4.6 billion operating loss in the second quarter, while online advertising operating income slightly decreased year-over-year.
Although Meta Platforms doesn't face many competitors in the AI landscape, a few hyperscalers can quickly secure a large portion of the market. For instance, Amazon, Microsoft, and Alphabet control more than 60% of the cloud computing market. Oracle, the fourth-largest cloud provider, only has a 4% market share. A similar setup with AI agents that doesn't include Meta Platforms at or near the top can make it harder to justify increased spending.
Big investments in AI are necessary for the company to keep up with other tech leaders and finally diversify beyond online advertising. Meta Platforms is correctly acting upon this opportunity, but it must translate this spending into commercial success while pivoting back to positive operating income growth rates to reignite the stock.
Marc Guberti has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, Microsoft, and Oracle. The Motley Fool has a disclosure policy.