Google stock rises, Meta stock plunges: A tale of 2 AI stories

Meta (META) stock is plunging after the tech giant's third quarter earnings reignited concerns about artificial intelligence (AI) overspending, while Alphabet (GOOG, GOOGL) stock is climbing on the company's cloud strength despite an increased AI spending outlook.

RBC Capital Markets equity analyst, Brad Erickson, tells Yahoo Finance there are three things companies need to do to build investors' confidence in AI. He notes that, unlike Meta, Alphabet is hitting all three.

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Video Transcript

0:00 spk_0

Meta and Alphabet getting vastly different reactions from Wall Street to their reports. Meta right now down 11.5%. Google up 5%. Investors seem wary of Meta's increased spending, but Alphabet's being rewarded as its cloud growth shows strength. Joining me now on this, Brad Erickson, RBC Capital Markets equity analyst. It's good to see you, Brad. Thanks for being with us.

0:21 spk_1

Boris, nice to see you too, Julie.

0:23 spk_0

In recent quarters, investors have looked at Meta's results and they've said, well, the AI is working, ad sales are up, um, and they're using AI in their business. Why was that not the reaction this time?

0:38 spk_1

Yeah, and maybe just to lay out like the simple formula of why these will work or not work. There's kind of like three things they have to do. Number one, they have to show how the core business is working and funding these investments and, and if you have AI as a part of that, which both Google and Meta do, that's great, right? See, but you need to keep beating expectations. The second one is you have to give investors a view and, and a vision for.What these products and what these investments, frankly, can produce in the future that's not present today in the business. Google has given a, a, I, I would say a crisper or more substantive view, more likely view of success in that. And then the third one is, obviously the, uh, the, the spending levels and taking those up. And so with Meta last night, the key issue was the Q4 guidance came in a little bit soft, and it wasn't a lot. And honestly, they'll end up probably beating, we think.For, but the numbers are the numbers, and when you're raising spend that much and you're not giving people a vision that they really believe in on meta AI or vibes or any of these new things, it just makes it hard. That's why the stock's getting, getting kind of killed thismorning.

1:49 spk_0

So, OK, so let's take that vision part of it and, and dig into that a little bit, Brad. Um, why, what is it about meta that is not convincing investors in terms of that like this is what we're doing with this in the future?

2:02 spk_1

Yeah, totally, uh, and they talked about, you know, when or if they see a paradigm shift. I, the way we frame it is, is that, you know, Google adding AI overviews and AI mode and Gemini is really kind of a natural extension of search, right? Like we're, we're all learning how to use this stuff. It's, it's prompting new, new questions and new things we're, we're asking for it. With Meta AI, I, I think.You can make the argument that is a kind of totally new realm of utility, right, that people haven't looked to Facebook or Instagram to before. And so there's a, there's a bridge to to cross there from Meta. And that's not to say the product's not gonna be good, right? They have the super intelligence labs, uh, working on sort of making the model, like they, they use the word not.No, right, which means differentiated from Chat GBT or what AI overviews or AI mode might look like on Google, um, but they're not there and I think investors are sort of struggling to understand how they will get there because we just haven't seen the product. It's not in existence technically at this point. So that's, that's kind of the issue.

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