Meta Platforms (META +0.14%) is going big on artificial intelligence (AI). It has been investing and hiring more staff to take advantage of opportunities related to AI. Recently, it unveiled its newest division: Meta Superintelligence Labs, also known as MSL.
MSL is going to be home to its AI efforts, as the company shows investors the seriousness of its focus on developing next-gen AI technologies. This comes after it recently announced a significant investment into another AI company.
Will MSL help grow the business and send Meta's stock soaring, or prove to be just another money pit?
Image source: Getty Images.
A big growth opportunity, or another cash-burning business unit?
Meta is going big on AI, and that was already evident even before it announced the launch of a new division. Previously, the company announced plans to create a stand-alone app for its chatbot, Meta AI, which has been incorporated into its existing social media platforms. It has also announced a $14 billion investment into Scale AI and in doing so it also brought on the company's founder and CEO, Alex Wang, to help lead Meta's AI business.
AI is undoubtedly a huge opportunity for Meta and other tech giants. But it has also been a money pit, with the payoff not always being clear to insiders or investors. Last year, research company Gartner predicted that 30% of generative AI projects would end up abandoned by the end of 2025 due to multiple factors, including rising costs and a lack of clear value for businesses.
Meta has been aggressive when it comes to pursuing growth opportunities, regardless of the costs. It began reporting on its Reality Labs division a few years ago, which focuses on the metaverse. The division routinely incurs operating losses in the billions each quarter, as that venture struggles to prove its worth. But with hugely popular apps (including WhatsApp, Instagram, and Facebook) and a ton of ad revenue, the overall company has still generated nearly $67 billion in earnings over the trailing 12 months.
However, whether MSL follows the same fate will likely be the burning question for investors that determines which direction the social media stock goes from here on out.
Why focusing on AI could be a great move for Meta
Although Meta will likely spend a lot of cash on this new division, I think the move makes much more sense than the metaverse, and it may even be a profitable venture.
Using headsets for the metaverse may not be all that practical if you want to stay connected for multiple hours, and glasses may be easier to wear but they can also come with other challenges -- namely, privacy. With AI, however, since it can be incorporated into any part of a business, such as enhancing Meta's ad business and improving the user experience on its social media networks. There are many more viable ways for investments into AI to pay off for Meta in the long run.
A huge advantage for the company is its billions of monthly active users, which give it a lot of data it can train an AI model on. The biggest challenge for many companies making AI models is accessing the necessary data to make them effective and useful. With Meta having a plethora of data on its social media platforms, it has a big advantage over other tech companies in this regard. It may still need to spend money to access data, but its costs may be lower in comparison to other businesses that are developing chatbots and training AI.
Meta AI already reaches 1 billion users across all of the company's applications each month. The company looks to be in a great starting point to build out its AI business, which can hopefully lead to significant profit growth later on.
NASDAQ: META
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Why I'd hold off on buying Meta Platforms for the moment
Meta has some exciting potential in AI, but without a clearer strategy of what it plans to do with AI and how much of a payoff there will be from it, I'd suggest holding off on investing in the company just yet. My preference would be to see it wind down Reality Labs and just focus on this new division. Potentially having multiple cash-burning units in its operations could hurt its cash flow and profits for the foreseeable future.
AI is an intriguing growth opportunity, but investors may want to take a wait-and-see approach with the company for now, to make sure its strategy is sound and will pay off for the business in the long haul. For now, that isn't evident, which is why I'd wait on the sidelines for the time being.
