Shares of Meta Platforms (META) tumbled 5.5% on Wednesday, closing at $567.58, as a double dose of bad news hit the social media giant. The stock underperformed the broader Nasdaq Composite, which fell 1.34% to 26,021.66, after the Federal Reserve kept interest rates steady but hinted that future rate hikes could be back on the table. The S&P 500 dropped 1.21%, while the Dow Jones Industrial Average shed 0.98%. Communication services stocks, which include Meta and Alphabet, led the S&P 500's losses for the day.
Adding to Meta's woes was the departure of Emily Dalton Smith, a key executive involved in the company's internal AI agent projects, according to Reuters. Smith had been leading work on Metamate, Meta's internal AI assistant, and had described the goal of making it 'the starting point for all kinds of work.' Her exit has raised fresh questions about the execution of Meta's ambitious AI strategy, just as investors are demanding clearer returns from its massive spending on artificial intelligence.
The Federal Reserve's hawkish tilt, as described by Michael James, managing director and equity sales trader at Rosenblatt Securities, was particularly damaging for Meta. The company trades like a long-duration growth stock, meaning its valuation relies heavily on profits expected years in the future. When interest rates rise, those future profits become less valuable in today's dollars, putting downward pressure on the stock. The Fed's so-called 'dot plot' showed that half of its officials now expect a rate hike this year, a stark reversal from earlier dovish signals.
Meta's AI investments have been a double-edged sword for investors. On one hand, the company is betting big on AI to improve its internal operations and enhance its products. On the other hand, the departure of a key AI executive has amplified concerns about whether Meta can deliver on its promises. With higher interest rates raising the bar for returns on capital, the pressure on Meta to prove its AI spending is generating tangible results has intensified.
Despite the negative headlines, Meta continues to show growth in other areas. On Tuesday, the company announced that Threads, its social media platform, has reached 500 million monthly active users, nearly three years after its launch. Meta has been adding more controls and community tools to the app while working to grow its advertising business against competitors like X (formerly Twitter). However, the milestone did little to offset the broader market selloff.
Separately, Snap (SNAP) this week unveiled $2,195 augmented-reality glasses, directly challenging Meta's Ray-Ban smart glasses and Apple's Vision Pro. Snap CEO Evan Spiegel said the company wanted to build 'a totally new type of computer.' Analysts, however, noted that the price point remains high, with Anshel Sag of Moor Insights & Strategy calling it 'still a bit on the high end.'
Meta was not alone in the selloff. Alphabet (GOOGL) dropped roughly 2.5%, and Microsoft (MSFT) slid about 3.8% after the Fed news, highlighting the broad pressure on big tech stocks tied to AI and digital advertising. The selloff underscores the vulnerability of high-growth tech names to changes in monetary policy.
Looking ahead, the risks for Meta are clear. If inflation remains stubborn and keeps interest rates elevated, investors could push for faster evidence that AI investments are boosting ad sales or reducing costs. The stock could face further declines if the digital ad market softens, Threads takes longer to monetize, or Meta encounters new setbacks with its in-house AI tools. Wednesday's decline may be just the beginning of a more challenging period for the company.
Markets in the U.S. are set to close on Friday, June 19, for the Juneteenth holiday, leaving just one full trading session this week for investors to digest the Fed's decision and Meta's latest developments.
