AI is the only loose commonality between Meta Platforms (META) and IBM (IBM). The former is investing heavily in Llama AI while the latter is a cheap way for investors to get exposure to AI.
Both companies posted quarterly results that led to a stock sell-off.
META stock lost 9% last week. Impatient investors are unwilling to wait for Meta’s steep expenses in AI to pay off. Its Q2 revenue forecast is below Wall Street expectations. Still, the higher expenses in infrastructure are necessary. The firm will increase its capital expenditures to $35 billion - $40 billion this year. This unlocks its AI roadmap, widening its lead over the competition.
Weeks after failing to trade above $199, IBM shares lost 8% last week. Shareholders are disappointed that its revenue rose by only 1.5% Y/Y to $14.46 billion. For the full year of 2024, revenue will grow in the mid-single-digit percentage. Markets are resetting the overvaluation in IBM to reflect the slow growth rate.
IBM is a legacy company. It depends on consulting gigs for revenue growth. Unless its revenue and cash flow rise, while expenses and debt falls, this is not a stock to buy.
Meta, however, is worth watching. It is investing strategically to grow its future.
