THE "FIELD OF DREAMS" FALLACY - Suckerberg will fall flat on his nose 🐽
The most famous thing about Field of Dreams, the Kevin Costner movie in which a farmer is urged by a disembodied voice to build a baseball diamond in his cornfield, is the line “if you build it, they will come”. That’s not exactly what the voice says, but it doesn’t matter. The principle is now lodged in the popular imagination — and that of high-spending Silicon Valley executives.
Mark Zuckerberg is a true scholar of Costnerian thinking, and with some reason. Meta Platforms’ second-quarter earnings showed that his company’s enthusiastic spending on artificial intelligence over the past couple of years was winning real money from customers — primarily advertisers who use Meta products, including Facebook and Instagram, to sell their wares.
The numbers were impressive enough to send Meta’s shares up more than 10 per cent on Wednesday, adding almost $180bn of market capitalisation. The price it achieved per ad rose 9 per cent year on year, even as the number of ads served increased by 11 per cent. It expects revenue for the next quarter of up to $51bn, where analysts had forecast about $46bn. Meanwhile, users are spending 5 per cent more time on Facebook, and 20 per cent more on Instagram video products.
Follow the Costner hypothesis, and the next step is, of course, to spend even more. Meta intends to do that in a big way. This year it could deploy $72bn in capital expenditure, mostly on servers and data centres. The company implied in a call with analysts that spending next year could be as much as $105bn, more than triple what it was spending when the AI industry got a jump-start in 2022.
Investors will at least be cheered by the evidence that AI does indeed pay. The same applies to rival Alphabet, which raised its spending forecast for the year to $85bn last week. Microsoft, which reported earnings on Wednesday too, said revenue from its Azure cloud computing division, increasingly powered by AI, increased by 34 per cent for its fiscal year ending in June.
Look ahead, and it increasingly feels that Zuckerberg, like the fictional Field of Dreams farmer, is guided by voices rather than commercial logic. He says the company’s goal is to birth AI that “surpasses human intelligence in every way” and usher in an “era of individual empowerment”. Meta plans enormous data centres — one of them nearly the size of Manhattan — named after Titans of Greek myth. These are definitely dreams of grandeur, if not delusions.
Investors are warming to Zuckerberg’s vision. After Wednesday’s bump, Meta stock was trading at 28 times earnings, a fifth above its five-year average. So far, Zuckerberg has built, and customers have come. But there’s no guarantee that what worked for last year’s $37bn of spending will also work for next year’s $105bn. With investors focusing on the share price, Meta’s founder dreaming of reshaping civilisation, and the cost of building AI rising rapidly, there’s plenty of room for interests to diverge from here.
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