Meta’s plans to spend billions of dollars on artificial intelligence has been met with investor scepticism despite higher earnings at the Facebook and Instagram operator.

Meta chief executive Mark Zuckerberg used a first quarter financial update to flag a $US3 billion ($4.6 billion) increase in spending on AI, adding the company was well-placed to become “the leading AI company in the world”.

“But building the leading AI will also be a larger undertaking than the other experiences we’ve added to our apps, and this is likely going to take several years,” he said on a call.

“It’s worth calling that out, that we’ve historically seen a lot of volatility in our stock during this phase of our product playbook, where we’re investing in scaling a new product but aren’t yet monetising it.”

As a result of the renewed push, the social media giant said capital expenditure this year could reach as high as $US40 billion – up from a forecast of up to $US37 billion.

“While we are not providing guidance for years beyond 2024, we expect capital expenditures will continue to increase next year as we invest aggressively to support our ambitious AI research and product development efforts,” Meta’s chief financial officer, Susan Li, said.

The news sent shares down as much as 16 per cent and setting the company up for a $US200 billion drop in value when trading reopens on Thursday.

The increased spending overshadowed an otherwise strong first quarter report. Earnings per share in the three months to the end of March came in at $US4.71, above the $US4.36 expected by the market. First quarter revenue hit $US36.46 billion.

Record rally under threat

Ahead of the result, shares had been on a tear, jumping more than 14 per cent in a single day in February after Meta stunned the market by announcing its first dividend and 25 per cent revenue growth.

Shares were up about 40 per cent this year, propelled – in part – by sweeping cost-cutting efforts that have led to the loss of thousands of staff. Since then, Meta has doubled down on AI investments, using chips from Nvidia to improve its recommendation engine and bring more users into Instagram’s TikTok competitor Reels.

The company is also developing the next iteration of its Chat-GPT competitor Llama, which was unveiled to some users earlier this month.

Despite the already strong year-to-date return, brokers remained bullish ahead of the result. More than 85 per cent of analysts covering the stock retain a ‘buy’ rating, with those such as Morgan Stanley’s Brian Nowak telling clients the increased cost efficiencies and new artificial intelligence investments could take the stock as high as $US550 in the near term. Shares ended Wednesday’s session at $US493.

The stock has also continued to find support among Australian fund managers. Hyperion Asset Management, Montaka Global, Magellan and Loftus Peak are among the local managers backing the stock.

Munro Partners, which bought back into the stock last year, noted the company’s earnings report in February was “perhaps the best example of AI at work we saw in the results season”. “Those with teenage children or users of social platforms will have witnessed this transformation firsthand as time spent on Instagram continues to increase,” they told investors this month.

Mr Zuckerberg said Reels had continued to drive growth in the most recent quarter and now accounted for half of the time users spent on Instagram.

Daniel Wu, Senior Analyst at Milford said he would be closely monitoring the return on investment from Meta’s AI spending, but retained a positive outlook on the stock going forward.

“Most people forget or aren’t aware that Meta has been investing in AI for years. PyTorch, the deep learning framework used by over 80 per cent of the AI industry, was created and open sourced by Meta in 2016,” he said.

“We believe Mark Zuckerberg is the best founder-CEO alive today ... for all its travails, Meta’s moats are now deeper and wider than ever before.”

The results arrive as Australia’s media companies continue to reel from news that Meta would not sign new media-sharing deals, leaving large gaps in the balance sheets of the 13 companies with which it had agreements.

The deal with Meta and Google-parent Alphabet was valued at about $250 million.