Did Mark Zuckerberg Just Suggest That Meta Platforms May Have Invested Too Much Into Artificial Intelligence?

Many investors have grown concerned that tech companies, particularly hyperscalers, are spending too aggressively on artificial intelligence (AI). It's a touchy subject because if it turns out to be true, it could send share prices crashing. There's been a growing pushback on AI data centers from the public, and there is concern that many companies are using AI excessively (also known as "tokenmaxxing") without any real payoff.

Meta Platforms (NASDAQ: META) CEO Mark Zuckerberg recently made an announcement that, while it sounds like it should unlock some growth opportunities for the business, may end up revealing a risk: that it's been spending too aggressively on AI.

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Meta plans to sell excess computing power

One of Meta's newest business ventures now involves selling excess AI capacity, not unlike what some other tech companies are already doing. What's puzzling about this, however, is that Meta has been spending aggressively on AI and has made its Meta AI assistant available in its social media applications, unveiled Muse Spark (its new foundation model), and last year it also launched Superintelligence Labs.

The idea that Meta thinks it might not need some of its AI capabilities amid such vast efforts is a bit surprising, but perhaps reflective of its excessive spending. This is, after all, the same company that has spent tens of billions of dollars on the metaverse and even underwent a name change years ago to reflect its change in strategy.

In May, at the company's annual shareholder meeting, Zuckerberg said that if it has overbuilt, it can sell compute to other companies at a premium. While the initial suggestion may have seemed innocent and nondefinitive, plans to build a new cloud business suggest it's much more than that, and may indicate the company has recognized it has invested too heavily in AI.

Is this a red flag for Meta investors?

Meta and other tech companies spent aggressively amid the pandemic, overestimating demand and anticipating a new normal that didn't pan out. Meta took it even further and spent aggressively on the metaverse, and that remains a costly venture for it today, with its Reality Labs division still incurring billions in losses each quarter.

This is a company that simply doesn't inspire much confidence that it's being methodical or thoughtful about its expenditures, and that raises the risk that, in the future, it may again make drastic cost-cutting efforts to correct for its excessive spending and investments. New plans for a cloud business to sell excess AI compute power may very well end up proving to be an early sign of that, which is why I'd tread carefully with Meta's stock. Although it's down 9% this year, there could be far further for the stock to fall if investors begin to worry that it's overspent on AI.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool has a disclosure policy.