A carnage in US technology stocks widened on Thursday (Oct 27) as shares of Meta Platforms Inc sank 20 per cent after the Facebook parent's costly metaverse bets and the impact of soaring inflation on ad spending spooked investors.
Meta was set to lose about US$78 billion in market value, if losses hold to the end of the session, adding to the trillions of dollars that some of the biggest tech names have shed this year amid rising interest rates and a stronger dollar.
Meta has lost more than half a trillion dollars in market value so far this year. Its shares were trading at US$100.55, their lowest since February 2016.
The company's results come a day after Google and Microsoft posted dismal numbers, sparking a widespread selloff in technology stocks.
Analysts said investors are worried because Meta is spending on capital-intensive projects at a time when the ad market, a major source of revenue for the company, is drying up.
The company expects to spend about US$10 billion a year for metaverse hardware and software, with chief executive Mark Zuckerberg saying on Wednesday that he expects those investments to take about a decade to bear fruit.
"Meta Horizon Worlds (at present) is a relative ghost town when compared with other 3D immersive worlds like Roblox and Fortnite," said Mike Proulx, research director at Forrester.
Meta's aggressive spending on the metaverse, however, is likely to be a boon for one segment of the broader technology sector - chipmakers.
Its plans require capital expenditure for new data centers and infrastructure, said Ben Barringer, analyst at Quilter Cheviot.
Data center-focused companies such as Broadcom, Advanced Micro Devices and Nvidia Corp could get a boost from Meta's plans. Their stocks rose between 1.4 per cent and 4.3 per cent. But for Meta, things look bleak a year after it changed its name to focus on the metaverse, a shared virtual reality where people can interact with each other through avatars.
So far this year, Reality Labs, the company's metaverse unit, has already lost US$9.44 billion in revenue, while last year the unit recorded more than US$10 billion in losses.
Meta has predicted that the unit's losses would grow further in 2023 and pledged to "pace" investments after that.
At least 13 brokerages cut their price target on the stock, with JP Morgan slashing to a Wall Street low of US$115. REUTERS