Wall Street’s Patience for a Costly A.I. Arms Race Is Waning


Meta just reported its best-ever first-quarter earnings. But for investors, that’s not enough — and that’s a warning to other tech giants set to announce their own financial results in the coming days.

Shares in the parent company of Facebook and Instagram are down 15 percent in premarket trading on Thursday, erasing more than $200 billion in market value, after Meta revealed the hefty costs of its bet on artificial intelligence. That makes clear that while Wall Street loves the opportunities that A.I. presents, it may not tolerate the profligate spending it takes to get them for that much longer.

Meta warned that A.I. costs would weigh on near-term results. The company plans to spend $35 billion to $40 billion this year — much of that on the technology — up from a forecast of $30 billion to $37 billion. It also expects second-quarter revenue to come in at $36.5 billion to $39 billion, below analyst estimates.

Mark Zuckerberg urged investors to be patient. Here’s what Meta’s C.E.O. told analysts:

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 and scaling a new product, but aren’t yet monetizing it.

He added that other products, including short video offerings like Reels and Stories, initially didn’t make any money, but became huge sources of advertising revenue.

Meta has been dinged for huge spending before, but bounced back. The company’s stock plunged in 2022 over investor fears about the billions that it spent on the metaverse, the virtual- and augmented-reality technologies that the company previously said were its future.

Meta’s stock recovered after Zuckerberg declared 2023 a “year of efficiency” by cutting costs. That helped Meta’s stock soar over the past year.

Meta’s stock decline is weighing on the broader market. Nasdaq futures are down 1 percent on Thursday, as shares in other tech giants fell. Two are reporting earnings on Thursday: Alphabet, whose shares are down nearly 3 percent in premarket trading, and Microsoft, whose stock is down about 2 percent.

Both are also spending billions on A.I., including investments in large-language models, data centers and more. How much patience will investors have for those efforts to bear fruit?

  • In other A.I. news: Here’s a deep dive into Saudi Arabia’s multibillion-dollar quest to become a dominant force in the technology that has put it at the center of a global battle between the United States and China. “If you want a serious deal, you need to be here,” one A.I. entrepreneur told The Times.

Antony Blinken seeks to strike a delicate balance in his visit to China. The secretary of state said in Shanghai that direct engagement was both valuable and necessary, as tensions between the two superpowers over trade and technology are high. Blinken’s nods toward détente come as President Biden weighs higher tariffs on Chinese products like solar panels and steel, and signed into law a bill to force TikTok’s divestment from its Chinese owner or ban it from the U.S.

McKinsey faces a criminal inquiry into its opioid work. The Justice Department is investigating the consulting giant’s role in advising drug companies including Purdue Pharma, the maker of OxyContin, on how to bolster sales of the drugs that have contributed to a deadly epidemic. McKinsey, which has already paid about $1 billion to settle lawsuits over the matter, hasn’t admitted wrongdoing.

A Russian court orders the seizure of JPMorgan Chase assets in the country. The decision to take $440 million worth of the American bank’s funds and its stake in a Russian subsidiary was delivered as part of a state-run lender’s effort to recoup its U.S. assets that JPMorgan froze after Moscow’s full-scale invasion of Ukraine. The move came as Washington expanded its ability to seize Russian assets held in the U.S.

BHP, the world’s biggest mining company, on Thursday announced a $39 billion takeover bid for Anglo American, a potential transaction that could shake up the industry. The proposed deal is all about copper, a key component in the green energy transition that is used in electric vehicles, energy infrastructure and more.

But BHP’s effort to dominate the world’s copper production faces significant hurdles and could start a bidding war.

Anglo American has long been seen as a potential takeover target. The London-listed group’s shares are down by almost half since 2022, hit by falling prices of commodities like diamonds, nickel and platinum.

The company has been under pressure after it downgraded production forecasts last year and has reportedly been weighing a sale of De Beers, its famous diamond business, independent of BHP’s takeover proposal.

Anglo American’s huge copper operations in South America are a big draw. The metal accounts for about a third of the company’s output. And copper prices are up 15 percent this year on expectations for growing demand amid the global green energy shift.

BHP has been looking to profit from decarbonization. The mining giant has a majority stake in the world’s biggest copper mine, in Chile. Last year, the company bought Oz Minerals, a producer of copper and gold, for $6.3 billion and sold its oil-and-gas unit to Woodside Energy in 2022.

But both BHP and Anglo American have had to take significant write-downs this year on their assets related to nickel, a key component of electric vehicle batteries, amid slowing demand.

A takeover of Anglo American also faces several obstacles, including:

  • Governments. South Africa’s state pension fund is Anglo American’s biggest shareholder, while Botswana owns a stake in De Beers. And China, the world’s biggest buyer of copper, may not want production to be dominated by one company.

  • Rival bidders. Competitors including Rio Tinto and Glencore have been bolstering their copper production and may jump into the fray, potentially forcing BHP to raise its offer.

The deal could spur a wave of mining M.& A. “From a strategic standpoint, bigger is always better in the metals and mining sector,” Wen Li and Michael O’Brien, analysts at CreditSights, wrote in a research note.


Unrest on American university campuses like Columbia over the war in Gaza is showing no sign of easing. Pro-Palestinian protests are growing across the country, while national lawmakers continue to make them a political football.

But while much of the national attention is on the clash between administrators and students, it’s worth looking at a central demand by many demonstrators: divesting schools’ investments in companies that they say are profiting from Israel’s invasion, and the longer-term occupation of Palestinian lands.

“Disclose, divest, we will not stop, we will not rest” is a rallying cry. Though the actual aims of protesters at various universities differ, the gist is that schools should sell their holdings in funds and businesses linked to the war.

That commonly means weapons manufacturers, though some demonstrators are also taking aim at companies like Google, which shares a contract with Amazon to provide cloud computing services for the Israeli government.

An obvious precedent is protests against apartheid in the 1980s, which prompted schools to divest their holdings in companies that did business with South Africa.

Whether divestment works is up for debate. Some experts say that because more university endowment money is tied up with asset managers and index funds than in individual stocks, schools don’t have as much control over their exposure to these companies. Researchers add that any such divestment would have little effect on those businesses or the Israeli government, and that selling would mean giving up any say over how those corporations are run.

For now, schools are largely refusing to alter their portfolios over the protests. But some demonstrators say it’s a moral matter: “If Columbia’s investments are so small as to not make a material impact, then why do we have them at all?” Vayne Ong, a doctoral student at the school, told The Times.

Meanwhile, national lawmakers are weighing in on the protests. The latest was Speaker Mike Johnson, who met with Jewish students at Columbia on Wednesday. He also declared that the school’s embattled president, Nemat Shafik, should resign if she couldn’t get the protests under control. (Talks between administrators and protesters are continuing.)

Johnson added that Congress should consider revoking federal funding for universities if the unrest carries on.


The legal fight over the future of noncompete agreements has begun: Business groups have sued the Federal Trade Commission to stop its ban on using the practice, arguing that the agency is acting beyond its authority.

But behind the scenes, companies and their advisers are already devising workarounds, particularly for senior executives.

Financial services could be hit hard. Private equity firms in particular often link employment contracts to deal making. But the F.T.C. rule doesn’t apply to banks and insurance companies, which aren’t governed by the agency.

Companies could lean on other tactics to reduce the risk of employees leaving, like nondisclosure and nonsolicit agreements. But there are other options.

Could an L.L.C. or partnership work? California has long banned noncompete agreements but makes exceptions for contracts included as part of joining an L.L.C. or partnership. The theory is that a firm is offering employment as an equal rather than as an act of coercion.

Might more companies look for new ways to expand their partnerships as a way of also extending more noncompetes?

Companies might offer other incentives to employees to keep them. The F.T.C. rule says that companies can’t penalize staff who join a rival, presumably including withholding stock grants.

But could companies consider the inverse — offering sweeteners, like big monthly pension payments or a stock award, to employees who don’t join competitors?

Employers may simply push the boundaries as far as they can. The ban would allow the F.T.C. to bring an action against a company that it thinks is using impermissible noncompetes, but it doesn’t render the contract unenforceable as a matter of state law.

Given that the agency doesn’t have unlimited resources to go after every offender, companies might simply seek to test the limits of how far the agency is willing to go.

Deals

  • The music rights investor Concord raised its takeover bid for Hipgnosis Songs Fund, which owns the catalogs for artists including Justin Bieber and Neil Young, to $1.5 billion, topping an offer by Blackstone. (Bloomberg)

  • Rubrik, a data management company, priced its I.P.O. at $32 a share, above expectations, valuing the business at $5.6 billion. (CNBC)

Policy

  • The S.E.C. wants the failed crypto company Terraform Labs and a founder, Do Kwon, to pay more than $5 billion in fines and interest after both were found liable for fraud. (FT)

  • The Commodity Futures Trading Commission is reportedly weighing a ban on derivatives bets on the presidential election. (Bloomberg)

Best of the rest

  • Rich Handler, the C.E.O. of Jefferies, sold $65 million worth of his shares in the brokerage to buy a yacht. (Bloomberg)

  • The ambitions of China’s BYD, a growing rival to Tesla, stretch well beyond electric vehicles. (FT)

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