Meta Stock Drops After Increased AI Spending Announcement
Meta’s stock faced a significant decline on Thursday, plummeting after the company revealed plans to ramp up its spending on artificial intelligence for the remainder of this year and into 2026 during its third-quarter earnings call. By midday, the stock was down over 11%, as analysts and investors processed the implications of this announcement.
CEO Mark Zuckerberg emphasized that this spending surge is meant to meet growing AI demand. However, he also pointed out the risks involved, noting that if companies over-invest, they might find themselves with excess computing capacity down the line. “We consistently see a situation where we establish some infrastructure, which we see as a good thing, yet demand continues to increase, particularly in our core business,” he said.
He further elaborated, “So, yes, there’s a chance we might overshoot our targets, right? If that happens, we’ll likely discover there’s still a strong interest in other new offerings we develop, both internally and externally. Almost every week, we receive inquiries from outside parties eager to access an API or other computing resources, but we haven’t rolled that out yet.”
Zuckerberg acknowledged that in a worst-case scenario—if Meta overbuilds—this could lead to unused capacity. He suggested that this is simply preemptive planning for future needs, though the company would need to navigate some losses and asset depreciation. However, such comments didn’t sit well with Wall Street.
In response to the earnings report, several analysts adjusted their price targets for Meta’s stock. For example, BofA Global Research’s Justin Post revised his target from $900 to $810, but he kept a “buy” rating. Similarly, Justin Patterson at KeyBanc Capital Markets decreased his target from $905 to $875 while maintaining an overweight rating. TD Cowen’s John Blackledge also lowered his price target from $875 to $810 but retained a buy rating. Other analysts, such as those from Morgan Stanley and Goldman Sachs, followed suit in lowering price targets but remained optimistic in their investment recommendations.
In a more positive light, not all analysts were bearish. HSBC’s Nicholas Court-Collison held his price target steady at $905, a sentiment echoed by Wedbush’s Scott Devitt. Crucially, Zuckerberg mentioned that the company’s AI-powered advertising tools are generating approximately $60 billion annually, suggesting that the increased spending could yield returns.
Nonetheless, concerns lingered over the adequacy of this justification, especially given that the Reality Labs division reported an additional $4 billion in losses. Mike Proulx from Forrester noted that while Meta has seen revenue and user growth, various cost increases are affecting its overall performance. “Unfortunately, the strong metrics were somewhat overshadowed by rising expenses,” he remarked. “Reality Labs continues its trend of losses without any signs of improvement.”
As a consequence, Meta’s stock now lags behind the broader S&P 500. Year-to-date, Meta’s stock is up 15% and has increased 14% over the last year, while the S&P is 16% and 18% ahead in the same time frames.
