Meta’s stock slides on AI bubble fears, as Zuckerberg calls for increased spending – News

Meta Platforms Inc.’s plans to increase spending on artificial intelligence infrastructure made investors jittery today, and its stock fell more than 6% in extended trading, despite the social network posting solid earnings and revenue beats.

In its third-quarter results, the company reported earnings before certain costs such as stock compensation of $7.25 per share, crushing Wall Street’s targets. Analysts had projected earnings of just $6.69 per share. The company’s revenue also came in above expectations, rising 26% from a year earlier, to $51.24 billion. The Street had been looking for just $49.41 billion in sales.

However, the company’s bottom line took a massive hit in the quarter, with net income coming to just $2.7 billion, down from a profit of $15.68 billion in the year-ago period. That’s because Meta was slapped with a substantial onetime tax charge of $15.93 billion that relates to U.S. President Donald Trump’s recently implemented One Big Beautiful Bill Act.

On a conference call, Meta Chief Financial Officer Susan Li said the Act will ultimately be beneficial to the company, leading to a “significant reduction” in its federal cash tax payments for the remainder of 2025 and future years.

Meta Chief Executive Mark Zuckerberg (pictured) hailed what he said was a strong quarter for both the business and its community. “Meta Superintelligence Labs is off to a great start and we continue to lead the industry in AI glasses,” he added. “If we deliver even a fraction of the opportunity ahead, then the next few years will be the most exciting period in our history.”

Looking at the current quarter, Meta said it anticipates revenue of between $56 billion and $59 billion, with the midpoint of that range falling just shy of Wall Street’s target of $57.58 billion estimate.

Meta vows to keep on spending

It wasn’t the guidance that got investors unduly worried, but rather the fact that Meta once again announced plans to increase its spending. Li told analysts the company is raising the low end of its spending forecast by $2 billion, and said the new forecast range is now between $116 billion and $118 billion, up from a range of $114 billion to $118 billion. In addition, the company also upped its fiscal 2025 capital expenditure guidance, saying this will now amount to between $70 billion and $72 billion, up from a previous range of $66 billion to $72 billion.

In recent months, concerns have been growing among some critics that the extravagant spending by Meta and its big technology peers is fueling a bubble in the AI industry that may one day burst, with potentially devastating consequences for the stock market. The company has invested billions of dollars into AI, not only on the data center infrastructure it needs but also in acquiring talented developers, such as Scale AI Inc. founder Alexandr Wang, who now heads up the company’s Superintelligence Labs unit.

On the call, Zuckerberg did his best to address these concerns, saying that he is seeing a “pattern” that shows Meta will likely need to invest in even more computing infrastructure than it initially believed it would need. That’s why the company has also signed massive, multibillion-dollar cloud computing contracts with the likes of Google Cloud, Oracle Corp. and CoreWeave Inc., he said. But he believes these investments will pay off handsomely for the company over time. “Being able to make a significantly larger investment here is very likely to be a profitable thing over some period,” he promised.

Moreover, he expressed confidence that overspending wouldn’t necessarily be the disaster that many envisage. He said that if AI doesn’t grow as fast as he anticipates, the company can always repurpose its new infrastructure for other workloads, such as improving its core recommendation algorithms. He said there’s potential to do this “in a very profitable way.”

Zacks Investment Research analyst Andrew Rocco told News that the increased capex spend suggests that Meta ultimately believes AI will result in people spending more time using its applications, which will generate more advertising revenues from the company. He’s especially optimistic about the prospects of Instagram Reels, which is its highest-growing ad segment. Moreover, he believes most investors understand this.

“I expect deep-pocketed institutional investors to defend the stock in the coming days at the $690 to $700 level,” Rocco said.

During the quarter, Meta completed a massive overhaul of its AI organization, snatching up Wang and other high-profile talents and creating the Superintelligence Labs unit in the wake of the lukewarm reception of its open-source Llama 4 model in April. Last week, the company caused a surprise when it said it’s laying off about 600 workers from its AI teams, while leaving its top-level TBD Labs alone.

Last month, the company debuted a new feature called Vibes in the Meta AI application, which delivers a feed of AI-generated videos, and it has had a promising start. Since Vibes was launched, Meta AI app downloads have increased by 56% to a total of just over 3.9 million. “Vibes is an example of a new content type enabled by AI, and I think that there are more opportunities to build many more novel types of content ahead,” Zuckerberg told analysts.

Reality Labs gobbles up more cash

AI may also make a difference to the fortunes of Meta’s Reality Labs business, which has been likened to a black hole or a money pit due to the staggering losses it posts quarter after quarter. In the last three months, it racked up a loss of just over $4.4 billion while generating just $470 million in sales.

Moreover, Li said, Reality Labs’ revenue in the fourth quarter is expected to decline from the same period last year. That’s because the company has not released a new virtual reality headset this year, mainly because retailers who purchased inventory of its existing model are waiting to shift that stock over the holiday season.

“We’re still expecting significant year-over-year growth in AI glasses revenue in Q4 as we benefit from strong demand for the recent products that we’ve introduced, but that is more than offset by the headwinds to the Quest headsets,” Li said.

She was referring to the company’s newly announced Meta Ray-Ban Display glasses, which launched last month with a $799 price tag. They’re the company’s first consumer-ready AI glasses to feature an integrated display in the lens. They also come with a wristband that enables users to navigate through that display using gesture controls.

According to Zuckerberg, the product is sold out, and all demo slots for November have been fully booked up. “We’re going to have to invest in increasing manufacturing and selling more of those,” he explained.

Meta reported 3.54 billion daily active people across its family of applications in the quarter, surpassing Wall Street’s target of 3.5 billion. Total advertising sales came to $50.08 billion, also beating expectations. Analysts had been looking for $48.5 billion in ad revenue.

CFRA Research analyst Angelo Zino said the strong ad performance was the main factor behind Meta’s earnings and revenue beat. “Advertising momentum grew 26% in the quarter, benefitting from increased ad impressions, up 14%, and higher average pricing of around 10%,” he said. “Better pricing was key to the beat.”

Despite today’s after-hours drop, Meta’s stock has still gained more than 28% in the year to date, outpacing the broader S&P 500 Index, which is up just over 17% in the same period.

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