Meta Platforms issued a disappointing Q3 revenue forecast, causing its shares to fall 11% amid investor concern over its massive AI spending. The company raised its annual capital expenditure forecast to as high as $145 billion, primarily for AI data centers. While CEO Mark Zuckerberg insists the investment is accelerating its core business, the move has drawn comparisons to its costly and unproven metaverse strategy.
Q3 financial results
- ▪For the second quarter, Meta's revenue was approximately $61 billion, a 28% increase from the previous year
- ▪Meta's second-quarter costs rose 55% to $42 billion, while its profit fell 14% to $18.3 billion
- ▪Meta Platforms Inc. gave a disappointing revenue forecast for the third quarter of 2026
- ▪The company's free cash flow for the quarter was $784 million, its lowest level since the third quarter of 2022
AI infrastructure spending
- ▪The majority of Meta's capital expenditure is allocated to building data centers to power its artificial intelligence projects
- ▪Meta raised its full-year capital expenditure forecast to a range of $130 billion to $145 billion
- ▪The new spending forecast is an increase from the $125 billion projection Meta made three months prior
Meta AI product strategy
- ▪Meta plans to sell its AI models, computing power, and tools directly to other businesses as a new revenue stream
- ▪Zuckerberg announced that AI agents, or chatbots that can work "24/7 on your behalf," will be the next wave of Meta's product line
- ▪CEO Mark Zuckerberg stated that Meta's AI investments are accelerating every major part of its core business, including advertising
Investor concerns
- ▪Following the financial announcements, Meta's shares fell by as much as 11% in after-hours trading
- ▪An analyst compared Meta's current AI spending to its "metaverse missteps," which involved heavy investment ahead of proven product demand
- ▪Investors are concerned about Meta's massive spending on AI without clear or immediate financial returns
Microsoft comparison
- ▪In contrast to Meta, Microsoft's shares rose 5% after it reported its quarterly results on the same day
- ▪Microsoft's positive market reception suggests investors may accept high AI spending when it is paired with clear financial returns
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