Meta earnings: record revenue overshadowed by soaring AI costs

Key points:

A strong top line, but margins take a hit

Meta Platforms delivered record third-quarter results that showed the strength of its advertising engine, but also the mounting cost of its artificial intelligence ambitions.

Key numbers from the report:

• Revenue: USD 51.2 billion, up 26% year-on-year and above expectations of about USD 49.5 billion
• Net income: USD 2.7 billion, down 83% from a year earlier due to a one-time USD 15.9 billion non-cash tax charge
• Earnings per share: USD 1.05 reported, versus USD 6.72 expected; adjusted EPS would have been USD 7.25 excluding the tax charge
• Operating margin: 40%, down from 43% last year
• Costs and expenses: USD 30.7 billion, up 32% year-on-year
• Capital expenditures: USD 19.4 billion, more than double last year’s USD 9.2 billion

The steep drop in profit was largely a technical effect of the new U.S. corporate tax law. Excluding that, underlying profitability remained solid, though rising costs continued to pressure margins.

AI ambitions take centre stage

The headline from the results was not the record revenue, but the scale of Meta’s spending plans. Management lifted full-year capital expenditure guidance to USD 70–72 billion, and signalled that spending will rise even faster in 2026, potentially topping USD 100 billion.

Most of this money is being poured into AI data centres and computing infrastructure. Chief Financial Officer Susan Li said Meta’s “compute needs have continued to expand meaningfully” and that the company will “invest aggressively” to build capacity both internally and through third-party cloud providers.

Mark Zuckerberg described the strategy as front-loading spending to ensure Meta has industry-leading computing power for its AI models and products. In practice, that means higher costs now in exchange for future scalability and leadership in AI capabilities.

Investors, however, were less enthusiastic. The stock dropped around 7–8% in after-hours trading as the market focused on the ballooning expense outlook and the lack of clear near-term returns.

Advertising remains the core engine

Despite all the talk about AI, Meta’s financial backbone remains digital advertising, which generated 98% of total revenue. Ad impressions across its Family of Apps rose 14%, while the average price per ad increased 10% compared with last year.

This growth reflects improved targeting and engagement, particularly on Instagram Reels, partly powered by AI-enhanced ad tools. For the current quarter, Meta expects revenue between USD 56 billion and USD 59 billion, broadly matching expectations and pointing to continued strength in the ad market.

Reality Labs continues to bleed cash

Meta’s hardware and virtual reality division, Reality Labs, once again weighed on results. The unit posted a USD 4.4 billion operating loss on revenue of just USD 470 million and is expected to post lower revenue in the coming quarter.

The contrast between the company’s highly profitable advertising arm and its loss-making hardware operations remains stark, underscoring the challenge of balancing short-term performance with long-term innovation.

The growing cost of AI dominance

Meta’s cost base is expanding faster than its revenue. Total expenses for 2025 are expected to reach USD 116–118 billion, and management warned that expense growth will accelerate in 2026. The main drivers are infrastructure depreciation, cloud spending, and employee compensation, particularly for AI specialists.

Zuckerberg’s decision to hire Alexandr Wang, the CEO of Scale AI, and acquire a near-50% stake in the startup illustrates the lengths Meta is going to in order to strengthen its AI capabilities. The company has also reorganised its AI division multiple times this year, prioritising efficiency and faster model development.

Risks mounting as ambitions grow

Meta faces not only rising costs but also external pressures. Legal and regulatory challenges are increasing, including youth-related lawsuits in the U.S. and scrutiny in the EU over personalised advertising. The company also risks overextending itself financially as it becomes more asset-heavy and dependent on long-term AI payoffs.

While these risks are real, Meta’s strong balance sheet, dominant ad business, and global user base (3.54 billion people use one of its apps daily) provide a solid foundation to weather volatility.

The long game: Meta’s billion-dollar bet on the future of AI

Meta has always been a company willing to spend its way into the future. This quarter confirms that pattern, only now the bet is far larger and the payoff less immediate. The company is not just building products, it is building the infrastructure for the next era of computing.

Whether that gamble pays off depends on two things: how quickly AI moves from cost centre to profit driver, and whether Meta can turn its scale into genuine technological leadership rather than just size. The coming quarters will reveal if the company’s vast AI spend starts to show up in higher engagement, smarter ad tools, or entirely new revenue lines.

For now, Meta is asking investors for patience and a leap of faith. The company that once connected the world through social media is now trying to power the world through intelligence. The direction is bold, but the execution must be flawless.

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