Although social media giant Meta Platforms (META) delivered a strong first-quarter earnings report, its stock price still fell following the release. The earnings report showed that Meta’s first-quarter revenue grew 33% year-over-year, exceeding $56 billion. At the same time, the company saw a significant increase in both ad display volumes and ad pricing, achieving an impressive operating profit margin of 41%.
So why did the stock price drop instead? The answer once again points to the ever-expanding artificial intelligence bills. AI-related expenses are weighing on profitability and causing concern among some investors.
Meta’s growth story is impressive. Not only did first-quarter revenue growth outpace the 24% seen in the fourth quarter, but it also exceeded the 26% growth from the third quarter.
On a business level, ad display volumes increased 19% year-over-year, while the average price per ad rose 12%. User engagement across Meta’s apps remains strong, with daily active users in March growing 4% year-over-year. The company expects this strong momentum to continue, with management forecasting second-quarter revenue between $58 billion and $61 billion, with the midpoint of the guidance range corresponding to approximately 25% year-over-year growth.
Alongside the earnings release, Meta raised its full-year 2026 capital expenditure guidance (including principal payments on finance leases) from the previous range of $115 billion to $135 billion, to a new range of $125 billion to $145 billion. Management explained that this increase is primarily due to rising component prices, especially memory prices, as well as additional data center costs to support future computing power.
Looking at the trajectory of capital expenditures in recent years: Meta spent approximately $39 billion in 2024 and approximately $72 billion in 2025. The updated midpoint of guidance for 2026 is approximately $135 billion—nearly double the 2025 level, and even exceeding the combined spending of 2024 and 2025. Capital expenditures in the first quarter alone reached $19.8 billion, an increase of approximately 45% from $13.7 billion in the same period last year.
Fortunately, the expanded spending plan has not affected Meta’s full-year total expense guidance, though that guidance itself is already at an exceptionally high level—projected to be between $162 billion and $169 billion.
As of the time of this writing, Meta’s stock has a forward price-to-earnings ratio of approximately 20 times, with a market capitalization near $1.55 trillion. Given the company’s growth trajectory, this valuation is not unreasonable. However, the recent stock price decline suggests that investors are increasingly weighing the potential benefits of Meta’s AI vision against the high costs required to achieve that vision.
In summary, Meta has demonstrated strong revenue growth and user engagement, but its continuously and sharply rising AI-related capital expenditures have triggered market concerns. Although the company is attempting to control costs through in-house chip development, diversified procurement, and layoffs, the continually raised spending guidance has left investors uncertain about future profitability and capital allocation efficiency. If Meta cannot demonstrate in the future that its massive AI investments yield solid returns, the stock price may face further downward pressure. Conversely, if these investments can be effectively translated into long-term competitive advantages, the current high level of spending may become a strategic asset for the future.
