Meta has lost 4% since the beginning of the week: should investors be worried?

Meta shares have fallen more than 4% since the beginning of the week. The main decline occurred on Monday and Tuesday, when investors started taking profits and reacting to signs of overheating in the AI market. On Aug. 20, The Wall Street Journal reported a hiring freeze at Meta's AI division, raising doubts about the sustainability of its strategy. However, market optimists believe that the current pressure on the securities is temporary.

Shares of Meta Platforms for two days (August 18 and 19) fell more than 4% - this is the worst fall since the April collapse of the markets due to the increase in U.S. duties, notes MarketWatch. The decline in Meta quotes began on Monday as investors reacted to a report from the Massachusetts Institute of Technology (MIT) that 95% of companies are not yet benefiting from AI, as well as OpenAI CEO Sam Altman's statement about a "bubble" in the AI market. These factors have cooled interest in the tech sector. On August 20, The Wall Street Journal reported on a hiring freeze at Meta's AI division, which added to the pressure on the stock, MarketWatch notes.

At the pre-market on August 21, Meta shares were losing less than 0.1%. The Nasdaq Composite index has fallen by 2.5% over the past five days.

The hiring freeze was part of Meta's large-scale restructuring, the fourth in the last six months. At the same time, the company has recently been actively strengthening its AI division, having poached more than 50 researchers and engineers from rival IT companies. It was expectations from its AI projects that previously fueled the stock's growth, StockStory notes.

Meta attributed the hiring freeze to "normal organizational planning: creating a sustainable structure for new superintelligence initiatives after recruitment and annual budgeting."

Investors are increasingly worried about the rapid growth of spending by technology giants on artificial intelligence, writes WSJ. Large companies, including Meta, are spending billions of dollars on research and infrastructure - primarily on the construction of data centers.

According to Axios, the ten largest companies in the S&P 500 index, which account for almost 40% of its capitalization, are also each other's largest customers. For example, Meta, Microsoft, Alphabet and Amazon are planning to invest about $400 billion in AI next year alone. These capital expenditures turn into revenue for other industry players, from Nvidia to Broadcom. Therefore, a cut in spending by at least one of the companies could hit the profits of the entire sector.

"When we see such huge investment booms, demand seems limitless and money is plentiful, but almost inevitably there is a phase of overproduction," notes Trevor Slaven, head of global asset management at Barings(quoted in Axios).

Concerns about the overheating of the AI market are already being reflected in quotations. In addition to Meta, Amazon and Apple shares fell nearly 2% on August 20, while Alphabet shares fell about 1%. Nvidia cut its losses and closed trading with a slight decline after falling 3.5% a day earlier, Yahoo Finance wrote.

Despite the current decline, Meta's shares remain relatively stable: over the past year, only six times movements of more than 5% have been recorded, StockStory notes . Therefore, the current drop indicates the significance of the news for the market rather than a revision of the fundamental assessment of the business.

Just two weeks ago, Meta's securities added 3.5% after analysts raised their price targets on the back of strong quarterly results. In the second quarter, the company's revenue rose 22% year-on-year to $47.52 billion and earnings per share rose 38% to $7.14, exceeding Wall Street's expectations.

Optimists in the market, including Wedbush analyst Dan Ives, consider the current pressure on the stock to be temporary. According to his forecast, the growth of the technology sector will continue for at least 2-3 more years, so short-term fluctuations do not change the long-term positive trend, MarketWatch specifies.

Since the beginning of the year, Meta's securities have grown by 28%, the second best result among Big Tech companies after Nvidia (+35%). The company's capitalization has reached $1.92 trillion and is close to the symbolic milestone of $2 trillion, recalls Investor's Business Daily. If Meta crosses this mark, it will join the elite club along with Nvidia (over $4 trillion), Microsoft and Apple (over $3 trillion each), as well as Alphabet and Amazon.

This article was AI-translated and verified by a human editor