Meta Looked Impressive Until You Read the Fine Print

Meta Platforms just reminded us that building the future of AI doesn’t come cheap.
After a strong third-quarter report, the stock tumbled more than 12% as management unveiled spending plans that even long-term investors found hard to digest.

At first glance, everything looked stellar. Revenue jumped 26% year over year to $51.2 billion, a healthy 8% increase from the prior quarter, fueled by a 14% rise in ad impressions and a 10% bump in ad pricing.

But underneath those headline numbers, Meta’s cost structure is ballooning almost as fast as its revenue.

Key Points

• Revenue jumped 26% to $51.2B, but expenses rose 32% and capex more than doubled as Meta ramped up AI and infrastructure spending.

• Management expects expenses and capex to grow “significantly faster” in 2026, signaling continued pressure on margins.

• Meta’s heavy AI investments could unlock future growth, but near-term costs have investors taking profits.

Spending Like It’s 2026

Here’s what caught investors off guard, expenses grew 32% year over year to $30.7 billion. That’s a faster pace than revenue growth, not what you want to see in a maturing business. Meanwhile, capital expenditures more than doubled to $19.4 billion as Meta poured money into data centers, GPUs, and AI infrastructure.

And there’s more to come. CFO Susan Li warned that 2026 will be an even bigger spending year than 2025. Meta expects “significantly faster” expense growth tied to AI infrastructure, incremental cloud costs, and higher depreciation. She also said capital expenditure growth will be “notably larger” a phrase that made investors wince.

This isn’t just a modest budget increase. Meta is essentially signaling that it plans to scale its compute capacity at the same aggressive pace as hyperscalers like Amazon and Microsoft, all while funding the Reality Labs division that continues to lose billions annually.

The Hidden Tax Hit and EPS Confusion

Adding to the headline drama was a one-time noncash tax charge that slashed reported earnings per share to $1.05. Without that charge, EPS would have been well above analyst expectations.

The accounting quirk didn’t change Meta’s fundamental performance, but it muddied the waters enough to make the results look worse on paper. Some traders likely reacted to the reported number without realizing how much of it was a one-off.

A Balancing Act Between Growth and Profitability

Investors know Meta can throw off enormous cash, it generated over $20 billion in free cash flow last year even after heavy spending. But the pace of this new AI buildout is staggering.

Management has hinted that the company is building multiple generations of custom chips, expanding global data centers, and developing new foundation models to rival OpenAI and Anthropic.

The catch is those investments take years to pay off. While Meta’s “Family of Apps” segment remains a profit machine, Reality Labs continues to drag down margins, and the AI push is turning into a cash sinkhole, at least for now.

What Most Investors Don’t See Coming

A detail that slipped under the radar is Meta’s long-term bet isn’t just about generative AI. The company is weaving AI into every layer of its ecosystem, from ad targeting and content recommendation to next-gen AI assistants that could reshape how users interact with WhatsApp and Instagram.

If Meta succeeds, the payoff could be massive. But in the short run, those AI chips, superclusters, and training costs will keep Wall Street nervous.

Bottom Line

Meta’s quarter was fundamentally strong, but the sheer scale of its 2026 spending plans rattled investors who’ve already seen the stock soar this year. It’s a reminder that in the AI race, even the biggest players have to spend like startups, and shareholders need the patience to see those investments bear fruit.