The news: Meta posted Q1 earnings that beat estimates on Wednesday, but its shares slumped on disappointing Q2 guidance as it outlined plans for heavy AI investments.

• Revenues were $36.46 billion, versus expectations of $36.16 billion, and rose 27% year over year.
• Meta’s advertising business saw improvements, with impressions jumping 20% and price per ad increasing 6%.
• Several rounds of layoffs throughout 2023’s “year of efficiency” and Q1 2024 saw the company’s headcount decline 10% to 69,329.
• The company still projects revenue growth for Q2, but its guidance was below investor expectations. The company’s stock fell 15% in pre-market trading Thursday.

Cost-cutting: Meta’s revenue increase is a sign that the company is still benefiting from its yearlong cost-cutting, giving it time to focus on the next growth sector.

• At the moment, that looks to be artificial intelligence. Meta has brought generative AI to its advertising business, allowing brands to use the tech to make accessible creative material and opening new pools of ad spending from smaller brands.
• But AI isn’t just a back-end feature: Meta recently brought Meta AI to consumers, prominently featuring it in the search bars across its app ecosystem and launching a standalone version designed to compete with ChatGPT.
• It’s yet to be seen if AI will drive long-term engagement or allow Meta to debut new ad space, but it’s a prominent push for mainstream use of AI. Other competitors are launching similar AI tools: TikTok has tested AI-generated music features; X offers access to an AI named Grok; and Snapchat has highlighted its ChatGPT-powered chatbot (which is partially locked behind a Snapchat+ subscription).

Our take: Meta will need to prove throughout the year that AI can be a significant driver of user and revenue growth in order to meet investor demands. Despite AI’s buzz, that’s a challenging prospect: Monetization has lagged behind AI development, and Meta has already run into notable content moderation issues involving the tech.