Meta Stock Tumbles 11% in June on AI Spending Fears

Meta Platforms (META) shares fell 11% in June, driven by a confluence of investor concerns. The social media giant is spending heavily on artificial intelligence, with capital expenditures projected at $125 billion to $145 billion this year, yet it lacks a cloud computing business to generate returns from those investments.

A key trigger was a Financial Times report on June 5 that Meta was considering raising tens of billions of dollars through a stock offering to fund its AI ambitions. This sparked fears of dilution, sending the stock down 6% that day.

Adding to the gloom, Meta's Reality Labs division, which houses its AI projects, is burning about $20 billion annually with no clear path to profitability. Employee morale is low after multiple layoffs, and the CTO described the AI reorganization as 'atrocious.'

Regulatory headwinds also emerged: the U.K. banned social media for children under 16, potentially fueling similar actions elsewhere. These factors combined to pressure Meta's stock throughout the month.

Meta's June decline matters because it highlights a critical vulnerability: unlike hyperscaler peers Amazon, Microsoft, and Alphabet, Meta lacks a cloud business to monetize its AI investments. This makes its massive capex spending riskier and harder to justify to investors.

The potential stock offering signals that Meta may need external capital to fund its AI push, which could dilute existing shareholders. However, a July 1 report that Meta plans to launch its own cloud computing business could be a game-changer, offering a path to monetize AI.

At a P/E of around 24, Meta's stock looks cheap relative to its 33% revenue growth. But the company must convince investors it can generate returns on its AI spending. If the cloud initiative succeeds, Meta could unlock significant value; if not, the stock may remain under pressure.