Key Points
- Meta forecasts significantly higher capital expenses next year due to aggressive AI investments, particularly in data centers.
- The company reported strong third-quarter revenue growth (26%) but also a larger increase in costs (32%).
- Meta’s profit was heavily impacted by a $16 billion one-time charge related to a U.S. bill.
- CEO Mark Zuckerberg emphasizes “aggressively front-loading” AI capacity building to pursue “superintelligence.”
Meta, the company behind Facebook and Instagram, announced on Wednesday that it expects “notably larger” capital expenses next year. This big spending is mainly for artificial intelligence, including the aggressive construction of data centers to power its AI ambitions.
The company reported a 26% increase in third-quarter revenue, beating market predictions. However, its costs jumped even more, by 32%. Meta’s shares, which have risen 28% this year, fell 8% after hours. Wall Street reacted to CEO Mark Zuckerberg’s plans for even larger spending on AI data centers, which will squeeze profits.
Meta also took a nearly $16 billion one-time hit due to U.S. President Donald Trump’s “Big Beautiful Bill,” which heavily impacted its third-quarter profit. Without this charge, net income would have been $18.64 billion rather than the reported $2.71 billion.
After a slow start, Meta has fully committed to AI, aiming for “superintelligence” in which machines can outthink humans. To achieve this, Meta plans to spend hundreds of billions of dollars building massive AI data centers and expects even larger financial outlays for its huge computing needs.
“There’s a range of timelines for when people think that we’re going to get superintelligence,” Zuckerberg said on a call with analysts. “I think that it’s the right strategy to front-load building capacity aggressively, so that way we’re prepared for the most optimistic cases.” He added that if superintelligence takes longer, Meta will use the extra computing power to boost its main business. In the worst case, the company would slow down building new infrastructure.
Jeremy Goldman, a senior director at Emarketer, noted, “After a few years of existential hand-wringing, the company has found its rhythm again by doing what it does best: scaling attention and monetizing it with ruthless efficiency.” He praised Meta for quietly turning AI into profit through sharper ad tools and smarter targeting.
Meta wants to catch up with rivals like Microsoft and Alphabet. In June, it sped up AI spending and reorganized its AI efforts under a “Superintelligence Labs” unit. Zuckerberg has personally led a big hiring spree for AI talent. Meta is also one of the top buyers of Nvidia’s highly sought-after AI chips.
Zuckerberg stated, “Meta Superintelligence Labs is off to a strong start. I think that we’ve already built the lab with the highest talent density in the industry … We’re also building what we expect to be an industry-leading amount of compute.” Meta CFO Susan Li added that employee compensation, especially for AI talent hired in 2025, will be the second biggest factor in rising costs next year.
The construction of AI data centers by Meta, Alphabet, Microsoft, Amazon, and OpenAI has exploded. The high costs are fueling worries of an AI bubble, putting pressure on CEOs to show results and find partners to help fund these huge expenses. Alphabet and Microsoft also indicated higher AI investments on Wednesday. OpenAI CEO Sam Altman recently said he wants his company to add 1 gigawatt of computing power every week, an enormous goal given the $40 billion-plus cost per gigawatt.
Meta also raised the lower end of its capital expenditure forecast for this year to between $70 billion and $72 billion, up from its previous forecast of $66 billion to $72 billion. Jesse Cohen, a senior analyst at Investing.com, commented that Meta’s earnings show “the growing tension between the company’s massive AI infrastructure investments and investor expectations for near-term returns.”
Meta’s huge user base continues to drive ad revenue. Its powerful AI-optimized ad platform helps marketers automate campaigns, improve video ad quality, translate ads, and create personalized images for different customers. Last month, over 3.5 billion people used at least one of Meta’s apps daily. The company has launched ads on WhatsApp and Threads, competing directly with platforms like Elon Musk’s X. Instagram’s Reels also battles TikTok and YouTube Shorts for short-video ad revenue.
Meta expects fourth-quarter revenue of $56 billion to $59 billion, in line with analysts’ average estimate of $57.25 billion.
