Meta Stock Drops 27% as Investor Concerns Mount Over AI Spending Plans

TLDR

Table of Contents

Meta shares fell 15% following Q3 earnings despite revenue jumping 26% to $51.2 billion
Company plans $70-72 billion in capital spending for 2025, with even higher amounts expected in 2026
Earnings per share hit $7.25, beating analyst forecasts of $6.69 by a wide margin
Free cash flow dropped from $15.5 billion to $10.6 billion as infrastructure costs increased
Ad revenue growth accelerated with impressions up 14% and pricing up 10%

Meta Platforms delivered a knockout earnings report that should have sent the stock soaring. Instead, shares tumbled 15% in the following week.

Meta Platforms, Inc., META

The company reported third-quarter revenue of $51.2 billion, crushing analyst expectations by nearly $2 billion. Earnings per share came in at $7.25, well above the $6.69 consensus estimate.

So what spooked investors? The answer lies in CEO Mark Zuckerberg’s ambitious AI infrastructure spending plans.

Massive AI Investment Plans Announced

Meta announced capital expenditure targets of $70-72 billion for 2025. CFO Susan Li indicated that 2026 spending would be “notably larger,” potentially pushing past $100 billion.

The company plans to use these funds to build computing infrastructure supporting AI features across Facebook, Instagram, WhatsApp, Messenger, and Threads. Total operating expenses are projected to reach $116-118 billion in 2025.

Management expects both capital spending and operating expenses to accelerate further in 2026. This open-ended commitment to AI investment has investors questioning the potential returns.

The advertising business continues to perform well. Revenue growth of 26% year-over-year marked an acceleration from the previous quarter’s low-20s growth rate.

Ad impressions across Meta’s platforms increased 14% while the average price per ad climbed 10%. Daily active users grew 8%, providing a solid foundation for continued monetization.

Cash Flow Pressure Emerges

Free cash flow tells a different story. The metric fell to $10.6 billion in Q3, down from $15.5 billion in the same period last year.

This decline reflects the mounting costs of Meta’s infrastructure buildout. While the company still generates substantial cash, the trajectory raises questions about future profitability.

The stock’s decline mirrors concerns from Meta’s metaverse era. Between 2021 and 2022, shares crashed 77% as investors soured on the company’s virtual reality spending.

Will AI Deliver Better Results?

AI differs fundamentally from the metaverse. The technology already shows proven applications across industries and consumer adoption.

However, Meta hasn’t provided detailed projections linking AI investments to revenue growth. This lack of clarity fuels investor uncertainty about the payoff timeline.

The company maintains a strong balance sheet, providing financial flexibility to pursue these investments. Management will provide updates on spending plans and AI monetization in future quarters.

Forward revenue guidance exceeded Wall Street expectations, suggesting confidence in the core advertising business. The platforms continue to dominate user attention globally.

Meta’s advertising tools and engagement features could benefit from AI enhancements. Better targeting capabilities and more engaging content could drive higher ad rates and impression volumes.

The recent pullback has lowered the entry point for investors willing to accept near-term spending uncertainty. The stock now trades around $635, down from $750 before the earnings announcement.

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