Meta Reports Record Revenue But AI Spending Surge Sparks Investor Concern, Stock Dips

Meta Platforms, the parent company of Facebook and Instagram, reported strong third-quarter financial results, with revenue jumping 26% year-over-year to surpass $50 billion for the first time. Advertising revenue also showed accelerated growth, up 26% from the previous year.

However, the positive revenue figures were overshadowed by Meta's escalating spending on artificial intelligence. Capital expenditures surged by over 100% compared to the same period last year, reaching $19.4 billion. The company forecast total capital expenditures to hit as much as $72 billion for the full year and projected significant growth in both capital spending and operating expenses for 2026.

This sharp increase in investment, while aimed at securing a lead in advanced AI and "superintelligence," has prompted questions from analysts about the viability and timing of returns, especially compared to cloud-focused competitors like Microsoft and Alphabet. Analysts, such as Nat Schindler of Scotiabank, have stated that Meta will need to demonstrate new revenue streams to justify its ramped-up capital expenditure.

Despite these concerns, Meta CEO Mark Zuckerberg remains committed to the aggressive strategy, believing it will benefit the core business and position the company for future AI advancements. Meta benefits from a strong financial position, generating over $100 billion in annual cash from operations and serving over 3.5 billion daily users.

Impact: This news significantly impacts the global technology sector and investor sentiment towards high-growth, high-spending tech companies. While Meta is a US-based company, its performance and investment strategies are closely watched worldwide, influencing how other tech giants allocate capital for AI development. For Indian investors, it highlights the risks and rewards associated with massive AI investments and can affect the valuation of Indian tech companies that might follow similar paths or compete in the AI space. The reaction of Meta's stock serves as a bellwether for investor patience regarding long-term AI plays. Rating: 8/10.

Difficult terms: Capital Expenditures (capex): Money a company spends to buy, maintain, or improve its fixed assets, such as property, equipment, or technology infrastructure. For Meta, this primarily includes building data centers and acquiring AI hardware. Superintelligence: A hypothetical form of artificial intelligence that would surpass human intelligence and ability across virtually all fields, including scientific creativity, general wisdom, and social skills. Compute: Refers to the processing power used for computing tasks. AI development, particularly training large language models, requires immense amounts of compute power. Megacap peers: Refers to publicly traded companies with very large market capitalizations, typically in the hundreds of billions or trillions of dollars.