What Meta and Jackson Pollock have in common - and why that matters to investors

By Emily Bary

Meta's big-spending ways may seem 'akin to throwing a bunch of paint at a canvas,' but a Bernstein analyst sees a more positive perspective as well

As Facebook parent Meta Platforms Inc. plows ahead with big artificial-intelligence investments, a Bernstein analyst sees parallels to the art world.

Specifically, Meta's (META) sizable spending plans make Bernstein's Mark Shmulik remember when Jackson Pollock's "No. 5, 1948" became the most expensive artwork to ever sell when it fetched a $140 million price back in 2006.

"To critics, Pollock's piece, and his drip style more broadly, may best be described as a chaotic mess of meaningless splatters of paint," Shmulik wrote. "His admirers, however, would appreciate the act of creation, not just the finished work, and appreciate the skill and energy that went into creating the art on the canvas."

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So what does that have to do with Meta? The company's $40 billion capital-expenditure forecast for this year also sets a record for priciness - at least if you look at it as a percentage of the company's overall revenue and compare it to that of other large technology peers.

"To critics, the undefined time horizon of spending, and no clear commercial products is akin to throwing a bunch of paint at a canvas and hoping something sticks," Shmulik wrote. "It doesn't help that there's a bit of PTSD from the recent, and still ongoing, expensive metaverse side quest."

But, like with the Pollock work, there's reason for fans to say all that money is worth it.

"To enthusiasts, it's a welcome pivot away from having to defend the core to opportunism, and a belief that Meta has as much of a right as anyone to win AI," Shmulik continued. Meta Chief Executive Mark Zuckerberg "has seen the future, and if there's a chance that Meta can elevate itself from the application layer and fulfill its destiny as one of the few platforms in the new computing paradigm, surely that's worthy of a few dollars!"

While Shmulik is bullish on Meta's stock with his outperform rating and $565 price target, he acknowledged that when it comes to the company's capital spending, beauty could be in the eye of the beholder.

"Where does that leave investors?" Shmulik asked. "Depends on how you value the art."

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Meta investors may need some patience in this era of massive spending. For instance, Shmulik noted the possibility that Meta's capital expenditures grow more quickly than the company's top line next year, a dynamic that would pressure return on invested capital. But the company would be deploying its big budget in pursuit of a goal that goes beyond a year or two: the hope it can "win the next internet."

"Is that not why we invest?" Shmulik asked.

He's not the only one to see the positives in Meta's AI spending recently. Raymond James analyst Josh Beck earlier this week mentioned Meta's "underappreciated" potential to monetize generative AI, and he cheered the company's positioning as it attacks that opportunity.

See also: Meta is a big AI spender - and that can give its stock a big boost

-Emily Bary

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07-03-24 0752ET

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