Seemingly without warning, shares of Meta Platforms (META) lost 8% on Thursday. The social networking giant lost two key court cases. That tarnishes its branding and sets up future litigation risks.
Investors discounted the risks ahead by selling META stock
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In the past week, Meta lost two cases. In the case set in New Mexico, jurors decided that Meta misled its users about social app safety for children.
In the case set in Los Angeles, jurors found Meta and Alphabet’s (GOOG) YouTube negligent in its failure to warn users about online platform addiction. The compensatory damages of $3 million are small for Meta. Meta is paying 70% of that, while YouTube pays 30%. The firms also faced punitive damages of $3 million.
Public Perception of Big Tech Reversed
The court cases could weaken Meta’s core business. It needs growing advertising revenue to fund its aggressive capital expenditures. Meta will spend up to $135 billion in AI servers, software, and staff this year. Any slowdown in advertising revenue would create negative cash flow. Risks accelerate if the AI bubble collapses. Not only would Meta fail to catch up to Microsoft (MSFT), Amazon (AMZN), and Alphabet, but investors would not want to hold a company losing money.
Shares of Alphabet, Tesla (TSLA), Nvidia (NVDA), and Broadcom (AVGO) also fell on Thursday. Memory supplier Micron (MU) lost 6.97%.
