Meta shares fall on concerns over AI spending, legal scrutiny

META Platforms  raised its annual capital spending forecast on Wednesday, signaling plans to pour billions more into artificial intelligence infrastructure even as it confronts potential losses from a global youth backlash against social media.

The Facebook and Instagram parent projected 2026 capital expenditure between $125 billion and $145 billion, compared with its prior forecast of $115 billion to $135 billion.

Shares of the company fell more than 6% in extended trading.

Meta also warned that legal and regulatory blowback in the European Union and the US “could significantly impact our business and financial results,” after years of mounting criticism about children’s safety on social media.

“We continue to see scrutiny on youth-related issues and have additional trials scheduled for this year in the US, which may ultimately result in a material loss,” it said.

The company is facing a rising number of teen social media bans around the globe, as well as thousands of court cases by individuals, municipalities, states and school districts that accuse it of designing addictive platforms that are harmful to children.

Several high-stakes court cases are due in the coming months, including the second part of a landmark New Mexico trial and a California case expected to test claims central to nearly 2,000 similar lawsuits filed by US school districts.

Adding to the gloom, Meta reported its first-ever quarterly decline in Daily Active People (DAP) since it started using that metric to measure user numbers across its social media platforms. It attributed the decline to internet disruptions in Iran, as well as restrictions on access to WhatsApp in Russia.

Daily active people grew 4% year-over-year in the first quarter to 3.56 billion.

Matt Britzman, an analyst at Hargreaves Lansdown, said Meta’s higher capital spending spooked investors but is likely overblown as it reflects more expensive memory prices rather than changes to Meta’s investment plan.

‘OPTIMAL SIZE’
The results come weeks after Reuters first reported Meta’s plans for sweeping layoffs, as CEO Mark Zuckerberg attempts to aggressively integrate AI into the company’s workflows and reshape its workforce around the technology.

The company is planning further layoffs in the second half of the year, sources have told Reuters.

Meta is also installing new tracking software on US-based employees’ computers to capture mouse movements, clicks and keystrokes to train its AI models, part of a broad initiative to build AI agents that can perform work tasks autonomously, Reuters reported last week.

Meta Chief Financial Officer Susan Li confirmed the May layoffs on a conference call after reporting the financial results.

“We don’t really know what the optimal size of a company will be in the future,” Ms. Li said. “I think there’s a lot of change right now, with AI capabilities advancing rapidly.”

On the same call, Mr. Zuckerberg described seeing tiny teams use AI to make products that previously would have taken dozens of people months to finish.

He said he wanted to build “the next evolution of our company around these people,” which meant investing in top-tier infrastructure, increasing rewards for heavy hitters and “streamlining teams so they aren’t bigger than they need to be.”

Meta said its workforce at the end of March was 77,986 people, up 1% from the same period last year but down from 78,865 at the end of December.

Reflecting anticipated savings, it kept the forecast for total 2026 expenses unchanged despite the projected rise in capital expenditure this year.

The company reported first-quarter revenue of $56.31 billion, beating the LSEG-compiled analysts’ average estimate of $55.45 billion.

It expects second-quarter revenue of $58 billion to $61 billion, largely in line with estimates of $59.5 billion.

But those results were eclipsed by faster growth by other tech companies.

“Meta’s results met expectations, but failed to impress investors, especially in the context of much stronger results from Google,” said Gil Luria, managing director of D.A. Davidson.

He said investors were also concerned that Meta’s spending plans rose without a corresponding reduction in operating expenses. — Reuters