Meta Platforms (META) saw its shares tumble sharply on Thursday, dropping as much as 12.1% intraday, following its third-quarter earnings report. The sell-off was driven by investor alarm over the company’s aggressive spending plans and a significant non-cash tax charge, overshadowing robust revenue performance and raising concerns about long-term profitability.
On the surface, Meta’s Q3 results were impressive. Revenue surged to $51.2 billion, a 26% year-over-year (YoY) increase and approximately 8% sequentially, comfortably beating market expectations. This growth was primarily fueled by a 14% rise in ad impressions and a 10% increase in the average price per ad.
However, underlying pressures emerged. Total expenses climbed 32% YoY to $30.7 billion, outpacing revenue growth. More notably, capital expenditure (capex) more than doubled YoY, soaring to $19.4 billion from $9.2 billion. Furthermore, a “substantial” one-off non-cash tax charge dragged earnings per share (EPS) down to $1.05. Excluding this item, adjusted EPS would have been $7.25, surpassing the consensus estimate of $6.71.
The primary catalyst for the market’s negative reaction was management’s spending outlook for 2026. During the earnings call, Chief Financial Officer Susan Li indicated that due to artificial intelligence (AI) infrastructure build-out, incremental cloud spending, and associated depreciation, the growth rate of total expenses in 2026 would be “meaningfully faster” than in 2025. Additionally, the absolute increase in capital expenditure in 2026 is projected to be “notably larger” than in 2025.
CEO Mark Zuckerberg reinforced this aggressive investment stance, stating Meta would “invest more aggressively” in AI over the next year to secure a leading position in the fast-evolving field. He defended the strategy of front-loading capacity build-out as the right approach, suggesting that even excess computing power could enhance core services or be monetized. Nevertheless, the scale of planned investment, particularly without a major cloud services business like peers Microsoft (MSFT.O) or Google (GOOGL.O), left many Wall Street analysts cautious.
The market’s verdict was clear. After closing the regular session at $751.67, Meta’s shares fell another 8% in after-hours trading. This plunge signals a shift in investor sentiment regarding the company’s relentless spending, coming after a 28% stock price gain year-to-date prior to the report.
“The earnings reveal the growing tension between Meta’s massive AI infrastructure investments and investors’ expectations for near-term returns,” said Jesse Cohen, senior analyst at Investing.com. “While the core business remains solid, the escalating spend on AI capabilities is weighing on sentiment.” This tension was palpable during the call, where one analyst bluntly told Zuckerberg that the market was “clearly” concerned about these investments.
Meta’s spending spree shows no signs of abating. The company raised the low end of its 2025 capital expenditure forecast, now expecting $70 billion to $72 billion, up from a previous range of $66 billion to $72 billion. With year-to-date capex already at $50 billion, more investment lies ahead. Li attributed rising costs to future infrastructure needs and demands from the Meta Superintelligence Labs.
Meanwhile, the company’s Reality Labs unit, focused on AI and metaverse hardware, reported an operating loss of $4.4 billion in Q3 against sales of just $470 million. The company anticipates this division’s revenue will decline YoY in the fourth quarter, partly due to retail partners stocking up for the holiday season. However, Li projected that sales of AI-powered smart glasses, like the Ray-Ban Meta, would grow even if Quest headset sales slow.
