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Meta earnings updates: Stock drops 5% as company expects to increase capex spending [Business Insider]

Wall Street wasn’t feeling the love for Mark Zuckerberg’s latest spending plans. Meta Platforms Inc. saw its stock slide more than 5% in after-hours trading Wednesday, even as the company reported earnings that beat analyst expectations. The culprit? A massive jump in capital expenditures—capex, in the jargon—that has investors worried about how much the social media giant is willing to bet on its long-term vision.

The numbers were solid enough on the surface. Meta posted earnings per share of $5.04, topping the $4.91 consensus estimate, with revenue hitting $40.1 billion versus the expected $39.2 billion. That’s a 21% year-over-year jump in revenue, driven by a strong advertising business that continues to benefit from its AI-powered targeting tools. But if you think those are headline-grabbing stats, the capex figure was the real showstopper.

Meta’s capex: A spending spree with AI at the center

Meta guided for 2025 capital expenditures in the range of $60 billion to $65 billion, up sharply from the $37 billion to $40 billion range it had projected for 2024. That’s a 50%-plus increase at the midpoint, and it caught a lot of analysts off guard. The company is pouring money into data centers, custom silicon, and infrastructure to power its artificial intelligence initiatives—including the ambitious open-source Llama model and the AI-powered assistant rolling out across Facebook, Instagram, and WhatsApp.

“We expect that our infrastructure costs will increase meaningfully in 2025 as we continue to invest in the capacity needed to support our AI products,” the company said in its shareholder letter. “We believe the investments we are making today will be key to delivering better experiences for users and advertisers, and to generating returns over the long term.”

The market’s reaction was swift. Meta shares fell from their regular-session close of $582.77 to around $553 in extended trading. The 5% drop erased roughly $70 billion in market capitalization—a steep price for a company that just beat on earnings. But investors have been here before. Meta’s stock has a history of volatility around capex announcements, especially when the spending is tied to unproven technologies like the metaverse (remember the $10 billion-plus quarterly losses at Reality Labs?).

Revenue growth is strong, but costs are climbing

It’s not as if Meta is ignoring its core business. The family of apps—Facebook, Instagram, WhatsApp, and Messenger—saw daily active users hit 3.29 billion in the fourth quarter, up 4% from a year ago. Advertising revenue remains the cash cow, with the company’s AI tools helping brands target users more effectively and boosting ad pricing. But the cost side of the ledger is where the tension lives.

Total costs and expenses for 2024 came in at $96.6 billion, and the company expects that to rise to $114 billion to $119 billion in 2025. The biggest driver is infrastructure-related costs, including depreciation and operating expenses for new data centers. Meta also said it expects “significant” hiring in AI-related roles, which adds to the wage bill.

There’s also the shadow of Reality Labs, Meta’s augmented and virtual reality division, which lost another $4.5 billion in the quarter. For the full year, the unit burned through $17.7 billion. Zuckerberg remains committed to the long-term vision of a mixed-reality future, but for now, it’s a drag on margins. The company’s operating margin narrowed to 42% in the fourth quarter, down from 44% a year earlier, a sign that the spending arc is bending upward faster than revenue can keep pace.

Why investors are nervous—but not panicking

So why did the stock drop? Because the market hates surprise spending, even when the rationale is solid. Meta’s capex guidance was higher than the $58 billion to $60 billion many analysts had penciled in. And there’s a lingering fear that AI infrastructure could become a “capital-intensive arms race” with no clear near-term payoff. Google, Amazon, and Microsoft are all ramping up their own AI spending, and Meta is trying to stay competitive without the same cloud revenue cushion.

But here’s the nuance: Meta’s balance sheet is strong. The company ended the year with $77 billion in cash and marketable securities, and it generated $65 billion in free cash flow in 2024. That gives it plenty of room to invest. The question is whether investors have the patience to wait for returns. Zuckerberg has been explicit that it could take years for AI investments to meaningfully boost revenue, and that’s a tough sell in a market that rewards short-term wins.

“We’re in a period of heavy investment, and I think it’s the right thing to do strategically,” Zuckerberg said on the earnings call. “But I also understand why it creates near-term uncertainty for the stock.” The CEO’s tone was confident, but not dismissive of the risks. He noted that Meta is already seeing early signs of AI improving user engagement and advertiser ROI, but he declined to quantify a timeline for when those benefits would show up in the bottom line.

What this means for the broader tech landscape

Meta’s capex jump is another signal that the AI wars are escalating. The company is investing in custom chips to reduce reliance on Nvidia, and it’s building data centers that can handle the massive compute loads required for training large language models. That’s a competitive necessity, but it also creates a rising tide of costs across the sector. If Meta’s stock can’t stomach a $60 billion-plus capex number, investors might similarly punish other tech giants when they report their own spending plans.

For now, the immediate takeaway is that Meta is doubling down on AI as the driver of its next growth phase. Whether that pays off—or whether it becomes another Reality Labs-style money pit—is the billion-dollar question. The stock’s 5% drop suggests the market is hedging its bets. But as any journalist covering this beat will tell you, betting against Zuckerberg’s long-term vision has been a losing game before.

Author Bio:

Ahmed Abed – News journalist covering technology, business, and markets. With a focus on the intersection of corporate strategy and Wall Street, Ahmed has reported on earnings, regulatory shifts, and innovation trends for over a decade. His work appears in leading financial publications and digital news platforms.

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