Meta Still Has a Lot to Prove in AI Race --- The Facebook parent's business model sparks more questions about eventual payoff than rivals such as Google and Microsoft

“Being the owner of Facebook and Instagram has given Meta Platforms some distinct advantages in the artificial-intelligence race. But at some point, the downside becomes apparent as well.

 

The company's third-quarter results on Wednesday showed both. Quarterly revenue jumped 26% year over year to exceed $50 billion for the first time, while operating income of $20.5 billion came in nearly 6% ahead of Wall Street's target. Advertising revenue climbed 26%, representing an acceleration from the 21% growth the company reported three months ago for the period ended in June.

 

Meta's problem is that its spending is growing at an even more rapid pace. Total capital expenditures more than doubled from the same period last year to hit $19.4 billion, and the company took the occasion to signal even greater outlays ahead. It now expects total capex to hit as much as $72 billion this year while projecting significant growth in capital spending and operating expenses for 2026. Meta's share price fell 11% in Thursday's trading.

 

Microsoft and Google's parent, Alphabet, used their own quarterly reports Wednesday to likewise project a jump in AI investments in the coming year. But those companies run large cloud-computing operations that already draw significant business powering AI workloads.

 

That makes the return on their large investments a bit easier to understand -- at least relative to a social network that still generates the bulk of its revenue from advertising.

 

Several analysts quizzed Meta's executives during its earnings call Wednesday about how the stepped-up investments will actually pay off. In a report following the call, Nat Schindler of Scotiabank said the company "will need to see a bevy of new revenue streams to validate their capex ramp."

 

But the lack of such revenue streams might not force Meta to tap the spending brakes anytime soon. Mark Zuckerberg, co-founder and chief executive, said Wednesday that the company's aggressive investment strategy is part of a plan to get ahead of the emergence of more-powerful forms of AI he describes as "superintelligence."

 

No one knows when that will be, so Zuckerberg says Meta's investment can still benefit the core business, "which continues to be able to profitably use much more compute than we've been able to throw at it."

 

He added that the company's AI-powered recommendation systems boosted time spent on Facebook by 5% in the third quarter.

 

Meta isn't exactly running low on funds. Advertising over a massive social-media platform serving more than 3.5 billion daily users is a particularly lucrative business; Meta is one of only five companies in the S&P 500 to generate more than $100 billion in cash annually from its operations, according to data from S&P Global Market Intelligence.

 

Still, its investments are reaching an eye-popping level. Capital spending of $72 billion this year will equate to 37% of the company's projected revenue. That is the highest relative spend among its megacap tech peers, and doesn't even account for the nine-figure offers Zuckerberg has been splashing on top AI researchers. Meta said Wednesday that total expenses will grow at a "significantly faster percentage rate" next year relative to the 23% jump expected this year.

 

Investors have been treating Meta as an AI winner thanks to its heavy investments as well as Zuckerberg's aggressive cutting of costs elsewhere. The stock has surged nearly 500% since ChatGPT launched three years ago, vastly outperforming bigger tech rivals save for Nvidia.

 

But the latest results -- and the reaction in its stock Thursday -- show the blank check investors have written to the Facebook parent might have an expiration date after all.” [1]

 

1. Meta Still Has a Lot to Prove in AI Race --- The Facebook parent's business model sparks more questions about eventual payoff than rivals such as Google and Microsoft. Gallagher, Dan.  Wall Street Journal, Eastern edition; New York, N.Y.. 31 Oct 2025: B10.