Meta’s Spending Surge and Stock Impact
Meta, led by Mark Zuckerberg, announced it will significantly boost spending to maintain its standing in the AI race, resulting in a stock drop of over 10% during morning trading, even after revealing record revenue for the third quarter.
In a recent report, Meta shared that it achieved a record revenue of $51.2 billion in the third quarter, marking a 26% increase compared to the previous year. However, the company cautioned that spending on AI-related initiatives would likely see a sharp rise next year. They also noted a surprising one-time tax charge of $15.9 billion, which lowered net income to $2.7 billion, falling well short of analysts’ forecasts. This tax issue stems from an accounting adjustment related to future tax liabilities due to the One Big Beautiful Bill Act.
During a conference call with analysts, Zuckerberg explained that increased spending is essential for pursuing what they term superintelligence—AI that surpasses human capabilities. He mentioned that if superintelligence arrives sooner, Meta would be strategically positioned for significant shifts in technology. If it takes longer, the extra computational power will help bolster Meta’s core business.
Zuckerberg emphasized the potential benefits of these AI investments, suggesting a vast upside. He shared that across platforms like Facebook, Instagram, and Threads, their AI recommendation system has led to improvements, increasing user engagement by 5% on Facebook and 10% on Threads in Q3. Notably, Instagram’s video usage surged by over 30% compared to last year, with Reels now generating an annual operating rate exceeding $50 billion as video content thrives across their services.
However, analysts are wary, questioning the clarity of returns on Meta’s hefty AI investments. Brian Mulberry from Zacks Investment Management, whose portfolio includes Meta stocks, expressed the need for clearer indicators on investment payoffs, noting his firm will hold but may not increase their stake in the company right now.
Recently, Meta restructured its AI division, bringing in new talent from top institutions and setting an ambitious target focused on superintelligence. The company acquired a 49% share in the data labeling startup Scale AI and even appointed its CEO alongside other staff. Nonetheless, about 600 employees were laid off from the AI division last week, although the team with many new hires remained intact.
In its financial results statement, Meta reflected on this pivotal phase, looking forward to enhancing their core offerings while also venturing into new AI-driven services that could change user interactions in the future. With ongoing investments in advertising and user engagement, they anticipate continuing strong revenue growth into 2026, supported by advancements in AI models paving the way for new revenue avenues.
