(Oct 30): Meta Platforms Inc said it will post a significant increase in total expenses in 2026 and plans to keep spending at historic levels on data centres and other infrastructure to fuel its artificial intelligence (AI) ambitions, sending the shares sharply lower in late trading.
Chief financial officer Susan Li said 2026 capital expenses will be “notably larger” than those of 2025, and total expenses next year will grow at a “significantly faster percentage rate”.
While Meta argues that its AI investments are paying off now by helping the company better target ads and content, chief executive officer Mark Zuckerberg is under pressure to demonstrate that the investment of hundreds of billions of dollars before the end of the decade will result in even greater returns.
During a conference call on Wednesday after Meta reported results, Zuckerberg signalled an unsatiated appetite for more computing resources. Meta will try to expand its infrastructure footprint next year, he said, seeking to “aggressively front-load building capacity” in order to have industry-leading amounts of computing power for its AI agenda.
“We want to make sure we’re not underinvesting,” Zuckerberg said. Still, the company is reining in costs at the margins. Meta last week cut 600 jobs from its AI unit, called Meta Superintelligence Labs, in an effort to make the group more efficient.
In contrast to Meta’s CEO, many Wall Street analysts are leery about the possibility of overspending.
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“Meta’s earnings reveal the growing tension between the company’s massive AI infrastructure investments and investor expectations for near-term returns, with rising spending on AI capabilities weighing on sentiment despite solid underlying business performance,” Jesse Cohen, a senior analyst at Investing.com, said in an email.
Meta reported third-quarter sales rose 26% to US$51.2 billion, which beat analysts’ average estimate of US$49.6 billion. The company has used profits from the advertising business, which generates about 98% of total revenue, to fund its AI efforts.
In the current period, Meta projected revenue will be US$56 billion to US$59 billion. Analysts, on average, estimated US$57.4 billion, according to data compiled by Bloomberg.
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The shares of the Menlo Park, California-based company declined about 8% in extended trading after closing on Wednesday at US$751.67. The stock had gained 28% this year through the close.
This year’s spending spree isn’t poised to stop. Meta said its capital expenditures for 2025 will be US$70 billion to US$72 billion, slightly raising the lower end of its previous outlook of US$66 billion to US$72 billion. So far this year, Meta has clocked US$50 billion in capital expenditures, signalling more investment to come.
“As we have begun to plan for next year, it has become clear that our compute needs have continued to expand meaningfully, including versus our expectations last quarter,” Li said in the statement. “We are still working through our capacity plans for next year, but we expect to invest aggressively to meet these needs both by building our own infrastructure and contracting with third party cloud providers. We anticipate this will provide further upward pressure on our capital expenditures and expense plans next year.”
Meanwhile, Meta’s AI-enabled hardware unit known as Reality Labs continues to bleed cash as it introduces new products. Reality Labs reported a US$4.4 billion operating loss in the third quarter, while bringing in US$470 million in sales. The company also said that it expects lower year-over-year revenue from the unit in the fourth quarter, partially due to retail partners procuring its Quest virtual reality headsets during the current quarter to prepare for the holiday season. Li said the company expects sales of its AI-enabled glasses, such as the Ray-Ban Metas, to increase even as the Quest headsets face a slowdown.
The company also reported third-quarter net income of US$2.71 billion, which included a one-time, noncash income tax charge of US$15.9 billion due to the implementation of the tax bill signed into law in July, Meta said in the statement. Without the accounting charge, Meta said net income would have increased 19% to US$18.6 billion.
Looking beyond the third-quarter, the company said it expects a “significant reduction” in US federal cash tax payments for 2025 and years to come due to the new law.
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