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By Larry Ramer, InvestorPlace Contributor, published here.
- Meta Platforms’ (META) weak guidance, an increased spending outlook and cautious CEO comments are dragging down META stock.
- CEO Mark Zuckerberg noted that META stock has been volatile in the past when the firm has significantly invested in upcoming products.
- Meta Platforms has become the third member of the Magnificent Seven to fall out of favor with Wall Street.
Meta Platforms (NASDAQ:META) reported solid first-quarter results, but META stock is sinking about 10% this morning due to Wall Street’s disappointment with Meta’s revenue guidance. Investors are also worried about CEO Mark Zuckerberg’s comments regarding the tech giant’s high expenditures.
Meanwhile, Meta Platforms’ guidance miss is having a negative impact on other tech names, including the other components of the Magnificent Seven. Meta’s disappointing performance may indeed make the Street less bullish on the Mag 7 as a whole.
Solid Q1 Results, Disappointing Guidance and Cautious Comments
Meta Platforms reported Q1 revenue of $36.4 billion versus analysts’ average estimate of $36.22 billion. EPS also came in at $4.71, well above the estimate for $4.32 per share.
However, the firm provided Q2 sales guidance of between $36.5 billion and $39 billion. The middle of that range comes in below analysts’ average outlook of $38.3 billion.
Meanwhile, the company raised its 2024 capital expenditure guidance to between $35 billion and $40 billion, up from its previous outlook of between $30 billion and $37 billion. Meta Platforms attributed the increase to its increased investments in artificial intelligence (AI).
Noting that Meta Platforms is “scaling a new product but [not] yet monetizing it,” Zuckerberg said that META stock has undergone a great deal of “volatility” during such periods of investment in the past. However, the CEO added that the firm will have multiple opportunities down the road to use AI to greatly improve its financial results.
The Mag 7’s Outlook
Meta Platforms’ guidance miss and spending hike could meaningfully dent investors’ belief in the impregnability of the Magnificent Seven. At the very least, three members of the group — Meta Platforms, Apple (NASDAQ:AAPL) and Tesla (NASDAQ:TESLA) — are now largely out of favor with major investors.
But the problems with those stocks could boost other members of the Mag 7 and lift firms outside of the tech sector that have been rapidly growing, such as General Motors (NYSE:GM) and Chipotle (NYSE:CMG). Some tremendously beaten-down mid-cap and small-cap stocks could benefit from Mag 7 weakness as well.
Before you consider investing in META, you should read this…
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