Meta's AI Investment: A Double-Edged Sword for Investors

Meta Platforms, Inc. (META) is set to report its third-quarter earnings on Wednesday, October 31, 2024, following the close of regular trading. The tech giant has been focusing heavily on artificial intelligence (AI) initiatives, with analysts expecting strong revenue growth driven by these investments. However, the author's core investment values emphasize a focus on sectors that generate stable profits and cash flows, such as utilities, renewable energy, and the REIT sector, over speculative ventures like AI that lack profitability.

Meta's AI initiatives, like Meta AI and the development of a search engine, have significantly contributed to its revenue growth in Q3. The company's AI chatbot, Meta AI, now reaches 3.2 billion people daily, with 40% of Instagram content recommended by AI. This has led to a 24% increase in user time spent on Instagram and a 22% year-over-year increase in revenues to $39.1 billion. However, the high capital expenditure required for AI initiatives is a significant risk, with Meta expecting to spend $37-$40 billion in 2024. This substantial investment could impact the company's financial performance if not managed effectively.

Meta's AI-driven growth is significant, with AI initiatives like Meta AI expanding to 29 new languages and 44 new countries. However, its competitors are also investing heavily in AI. Alphabet's Google has made substantial AI advancements, while Microsoft's Bing search engine is integrated into Meta AI. Despite these advancements, Meta's AI focus has not yet translated into significant revenue growth, with Q2 revenue growth of 23% year-over-year, down from 27% in Q1.


To mitigate the risks associated with AI investment, Meta has been focusing on diversifying its AI initiatives, expanding access to Meta AI in new languages and countries, and exploring innovative energy solutions like geothermal power for its data centers. These efforts demonstrate Meta's commitment to addressing the challenges associated with its AI investment strategy.


Investors seeking stable, income-focused investments should consider sectors like utilities, renewable energy, and REITs. The Cohen & Steers Quality Income Realty Fund (RQI) offers stable yields and potential for capital gains, while the XAI Octagon Floating Rate & Alternative Income Trust (XFLT) provides diversification and adaptability. Additionally, REITs like AWP and GOOD, as well as reliable income-generating investments like Scotiabank, offer high dividends and strong institutional stability.

In conclusion, while Meta's AI investment strategy has driven user engagement and revenue growth, the high capital expenditure and intense competition pose significant risks. Investors should consider the long-term, stable income approach, focusing on sectors that generate consistent, inflation-protected income. By leveraging diversification and market opportunities, investors can secure steady returns and mitigate the risks associated with speculative ventures like AI.