Meta Shares Drop After Q3 Results
Shares of Meta suffered a sharp decline early Thursday following the release of the company’s third-quarter earnings. Facebook’s parent company, part of the so-called Magnificent Seven, highlighted a significant focus on investing in AI. While the company reported its best revenue growth since early last year, investors seemed worried about the rising costs tied to CEO Mark Zuckerberg’s ambitions in AI technology.
According to Mark Mahaney, an analyst at Evercore ISI, Meta has ramped up its capital spending plans for 2026, leading to a 7% drop in share prices post-announcement. “This increase in capital expenditures is part of its goal to become an ‘AI leader,'” he noted in a letter to clients.
Chief Financial Officer Susan Lee indicated that capital expenditures in 2026 will see considerable growth compared to 2025. Total spending will also pick up pace significantly in the coming year. This announcement follows Zuckerberg’s commitment to invest hundreds of billions in data centers and computing infrastructure, with an anticipated capital expenditure of $71 billion for 2025—almost double that of 2024.
In a recent conference call, Zuckerberg expressed his desire to position Meta as a significant “frontier AI lab.” Earlier this year, the company recruited engineers from OpenAI and other notable AI competitors to build a research team focused on “superintelligence.” Although he acknowledged the uncertainty around the timeline for achieving superintelligence, he aims to “aggressively front-load” computing resources.
Post-report, Oppenheimer analyst Jason Helfstein rated Meta stock a neutral “perform,” citing unknown revenue opportunities and drawing parallels with past spending during the Metaverse push.
During Thursday’s trading session, Meta’s stock dropped over 9% to $680.22.
Q3 Financial Highlights
For the September quarter, Meta reported earnings of $1.05 per share, falling short of analysts’ projections of $6.72. However, adjusted for a notable one-time tax expense of $15.93 billion, earnings stood at $7.25 per share. Sales surged 26% to $51.24 billion, exceeding estimated revenues of $49.51 billion, driven by robust advertising performance on Facebook and Instagram. The family of apps experienced a 14% boost in ad impressions compared to last year, with average ad prices rising by 10% year on year. The total user count across Meta’s platforms increased by 8% to 3.54 billion.
This quarter marked the highest sales growth for Meta since early 2024. Lee expects Q4 sales to be around $57.5 billion, a slight dip from analyst forecasts of $57.8 billion.
Bernstein analyst Mark Schmulik remarked that Meta managed impressive revenue growth, attributing it to AI advancements that seemed inconceivable just a few quarters prior. Yet, he expressed concerns that plans to elevate investment levels evoke memories of the Metaverse era.
Zuckerberg Addresses AI Spending Concerns
Unsurprisingly, Zuckerberg and Lee faced questions from analysts regarding how they plan to manage and recoup extensive AI-related expenditures.
In contrast, companies like Microsoft and Alphabet, Google’s parent, also announced significant spending increases, with the advantage of established cloud services for more immediate returns.
Zuckerberg stated that AI initiatives are already enhancing the core social media advertising business, noting a 5% increase in time spent on Facebook during the third quarter attributable to AI recommendations. He linked the growth in ad sales to enhancements in the company’s automated ad buying systems.
He added, “The earlier we achieve superintelligence, the better positioned we will be for a major shift with numerous opportunities. If it takes longer, we can still utilize the additional computing power to boost our primary business operations.” However, uncertainty surrounding the superintelligence timeline has led some analysts to draw comparisons to the Metaverse initiative, which significantly impacted Meta’s stock value in 2022, resulting in substantial losses. Meta’s Reality Labs, focused on the Metaverse, reported a $4.4 billion loss on just $470 million in revenue for the third quarter.
Given Meta’s position in the advertising sector, it’s possible that AI might already contribute significantly to overall revenue. Nonetheless, the potential benefits of Meta’s open-source frontier model remain uncertain as it falls behind competitors like OpenAI and Anthropic.
Analyzing the situation, Needham’s Laura Martin indicated that the company sees success as a broader social goal rather than a direct financial return. She maintained her neutral stance on Meta stock.
Stock Predictions
Based on trends in pre-market activity, Meta stock seems poised to dip below the double-dip base established in recent days. It is also likely to drop below its 50-day moving average.
Despite the recent turmoil, Meta’s stock has appreciated by 27.7% this year.
